Simon Hood
Wilmar Manager Grower Marketing
The New Year has heralded an unwelcome change in global sugar price sentiment, initially prompted by the world market getting more comfortable that the first quarter supply of sugar was tight but manageable. This resulted in a gradual deterioration of the ICE #11 March 25 futures premium over the May contract.
The speculative money sensed the path of least resistance was down, so they had been getting increasingly aggressive with their short-selling strategies. This was being met with scale-down trade buying. Then the rumour – and now fact – that the Indian government is issuing export licences for 1 million tonnes of white sugar, broke the market to the downside.
India's choice to issue export licences at this time is puzzling. Wilmar has been revising down sugar estimates for the current harvest due to a poor growing season combined with an increase in crop disease, and an increase in ethanol production. This results in a low domestic stock position of what is an important base energy source for a large proportion of the population.
With this harvest approximately 50 per cent complete, production is running behind schedule, and the increased disease is resulting in poor cane quality. Indian domestic sugar prices have rallied and, at current levels, it appears there is no incentive for sugar to be exported. The notion that the government would subsidise exports is a possibility but there appears little incentive for that to occur.
The wrap-up of the 24 season for Brazil is all but done, with the final sugar production estimated to be just under 40mt. Rain in Brazil has been reasonable over the last couple of months so there is some alleviation from the dry growing season of 24.
The current forecast for Brazil's 25 crop is for a large 42.5m tonnes of sugar production. The increase is based largely on the assumption of a 52 per cent sugar to ethanol mix (24 season was 48 per cent).
So after a long period at the end of last year with minimal market news, the New Year has started with a flurry. How this plays out is yet to be determined. The structure of futures prices is relatively flat so the current consensus of the market is an each-way bet.
Fortunately, the AUD has weakened significantly over the past couple of months, which has dulled the impact of the falling futures market. However, at 62 cents, the AUD is at levels that historically have proven good buying, so it could be vulnerable to a rally on the back of USD weakness linked to the changing mood of Trump.
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