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Weekly: Bullish Factors Intact in NY Sugar as Fund Buying Rebounds amid Global Supply Concerns; Ends Sub-17 Cents on Month-End Square Off

28 Feb 2021 6:58 pm
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Mumbai Commodities Control - Sugar #11 ends the last week of the month sub-17 Cents level, after reaching near a four-year peak at 17.52 cents per lb early this week. For the week-ended 26th February, the most-active May '21 futures shed 2.62% or 44 points. Losses this week follow sharp gains, when May futures gained 110 points for the week ended 19th February.

This week, sugar prices on Friday tumbled to 1-week lows as weakness in crude prices and a slump in the Brazilian real against the dollar sparked long liquidation in sugar futures. Crude oil prices on Friday fell more than 2% weighing on ethanol prices, while the Brazilian real on Friday dropped 1.58% to a 3.5 month low against the dollar.

ICE raw sugar prices fell ahead of the expiry of the March contract. May raw sugar fell 2.3% to 16.45 cents per lb, extending its retreat from the near four-year peak of 17.52 cents set on Tuesday.May white sugar fell by $9.00, or 1.9%, to $459.00 a tonne.

The March contract expired on Friday with deliveries seen by traders at around 17,500 lots, or about 890,000 tonnes, a bit lower than seen for this contract the year before.

Infact, Friday’s weak closing was an extension of the decline witnessed in Thursday’s session. Sugar prices on Thursday posted losses, as May raw sugar fell 1.6% to 16.84 cents per lb.

Sugar prices were undercut on Thursday when Green Pool Commodity Specialists projected a 2021/22 global sugar surplus estimate of 4.1 MMT, wider than the projected 2020/21 global sugar surplus of 500,000 MT and the largest surplus in 4 years.

Although they lowered the global sugar surplus forecast for the current 2020/21 season, primarily as it trimmed estimates for key producers India and Thailand.

In another bullish factor, the International Sugar Organization (ISO) on Thursday forecast a wider than previously expected global sugar deficit of 4.8 million tonnes in the 2020/21 season.The inter-governmental body had previously forecast a deficit of 3.5 million tonnes for the current season.

The ISO, in a quarterly update, forecast global production for the 2020/21 season (Oct/Sept) at 169.0 million tonnes, down from a previous projection of 171.1 million. Global consumption was seen at 173.8 million tonnes, 2.1% above the prior season. The ISO also trimmed the size of a global surplus in the 2019/20 season to 0.9 million tonnes from a previous estimate of 1.9 million tonnes.

Yet another positive for sugar was Thursday's forecast by the European Commission that EU 2021/22 sugar production will fall 12% y/y to 15.4 MMT.

Not to forget that Brazil reported on Monday that current shipping delays for its soybean exports might curb global sugar supplies because the queue of vessels waiting at Brazilian ports is so large that bottlenecks will likely continue until May, when sugar is normally the biggest crop for export.

Also India's sugar exports are expected to fall by 12% to 5 million tonnes this year as a shortage of containers slows trade and threatens to drive up global prices.

"The container shortage is limiting our exports," said Prakash Naiknavare, managing director of the National Federation of Cooperative Sugar Factories Ltd. "We have signed export contracts for about 3 million tonnes but managed to ship only around 1 million tonnes."

India could export 5 million tonnes of sugar in the 2020/21 season ending on Sept. 30, lower than last year's 5.7 million tonnes, he said.

Meanwhile, the volume of sugar Brazilian mills have hedged using futures contracts in New York has soared to 80.5% of their expected exports in the 2021/22 season, way ahead of average for this time of the year, according to a report released on Friday.

Archer Consulting, a firm that advises sugar companies on hedging strategies, said mills in Brazil have also advanced on price fixation for the 2022/23 crop, hedging around 25% of their projected exports for that season.

The reason for such a large hedging is rising sugar prices at the exchange and the depreciation of the Brazilian real , which increased mills' gains in local currency.

Archer estimates an average hedging price of 1,619 reais ($290.38) per tonne. Cost of production in Brazil is estimated at around 1,100 reais per tonne (FOB Santos), so although the average hedging is distant from current higher prices, it still gives mills good profit margins.

This sums up the fact that the sweetener may have slipped amd month-end squaring-off, the near-to-medium term factors are anything but bearish.

Concerns about smaller global sugar supplies has fueled fund buying of sugar futures. It is to be noted that net longs of managed money have reported a second consecutive weekly rise. The CFTC report for the week ended 23rd February pointed towards a chunky gain of 21,426 contracts to 218,550 contracts. While the shorts dropped by 12,626 contracts. The open interest was registered at 12,50,897 contracts vs 12,73,244 contracts last week.

Support and resistance for Sugar #11 lies at 16.15 and 16.97 cents per lb, respectively.

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