Raw sugar futures traded higher over a 200-point range in the last month, with the prompt Jul-21 contract making life-of-contract highs above 18 USc/lb.
There is speculation about shortfalls in the Brazilian crop, after the latest UNICA report showed a slower crush in Brazil’s CS region.
The Brazilian crop output will be the focus going forward, with possible changes in output, sugar mix and yield key drivers for prices.
Macro/currency commentary
The AUD has chopped over a USD0.7688 – 0.7889 range tin the past 30 days, as global reflation returns to the radar against strong commodity prices.
Iron ore and oil prices have led the charge for commodity currencies this year, as demand heightens for natural resources.
Locally, the RBA upgraded its forecast for employment and kept interest rates on hold.
Raw sugar prices jumped more than 3% in mid April to record 7-week highs, underpinned by bad weather for crops in Europe as well as Brazil, and positive macroeconomic indicators.
Global forecasts for 2021/22 are now for a smaller sugar surplus of around 2.9 million tonnes, primarily due to recent crop downgrades in Brazil.
It is now anticipated that Brazil’s production may drop from 38.5 million tonnes last season to between 31–33 million tonnes, with the possibility of further reductions in forecasts if rainfall does not improve.
Macro/currency commentary
The AUD has continued to trade in a USD 0.75–O.78 range, with no signs of moving out of this range.
The RBA’s April meeting provided little news to influence the market.
Positive US news on the COVID-19 vaccination front boosted risk sentiment, with the vaccine rollout ahead of target.
Since the expiry of the Mar–21 contract some weeks ago, the new prompt May–21 contract has traded sideways in the 15.50–16.50 USc/lb range.
Fundamentally, there have been very few new inputs for the sugar market other than crop updates.
Brazil remains the key focus for sugar prices going forward.
Macro/currency commentary
The AUD pulled back nearly 4% of gains, which saw it trade above three-year highs at USD 0.80.
However, price action since then has underwhelmed, with rising treasury yields, a drop in equities and concerns about higher inflation keeping the market at bay.
Attempts to break USD 0.78 continue to be rejected with technical resistance and demand.
Locally, the economic data flows and demand for natural resources continue to float the AUD and are key to providing forward guidance.
The prompt March21 raw sugar futures contract settled during the month at an average rate of 15 USc/lb.
A few tests of 15.50 USc/lb failed to kick on, as a 15 USc/lb floor looked stable.
On the fundamental side, India continued to hold most of the market’s attention. Subsidised or not, it is expected that India will export sugar to support tighter global trade flows through 1H 2021.
Macro/currency commentary
A strong month for the AUD, with trading ranging from a USD 0.6991 low to a high of USD 0.7373 toward the end of the month.
The US Presidential election came and went — complete with the expected fireworks. While a clear win for Democratic candidate Joe Biden, it was not the landslide predicted by most polls.
Market attention moved back to COVID-19, as Moderna and Pfizer registered successful trials of vaccines and Oxford University announced a successful trial of a vaccine developed in conjunction with AstraZeneca.
The RBA cut interest rates to 0.1% as widely expected, with the commentary clearly underlining a lack of intent to move to negative interest rates unless widely adopted in other parts of the world.
Raw sugar futures chopped higher over the past month as the Mar–21 contract achieved life-of-contract highs at 16.75 USc/lb off the back of US dollar weakness.
Fundamental news remained quiet following India’s export subsidy announcement in December. At least two million tonnes has been contracted for Indonesia, while Indian millers will continue to seek out homes for the remainder of the proposed five million tonnes of exports.
Thailand’s crush is lagging behind the same period last year, as anticipated by the market.
From a fundamental perspective, all eyes will be on the Brazil crop in the coming months.
Macro/currency commentary
The AUD has been well supported in the last month by a weakening USD, and has seen fresh 33-month highs at USD 0.7816.
Ever-increasing COVID-19 numbers and political unrest have weighed heavily on the US dollar and economy.
Investors have moved money from the typical safe havens of the USD and gold, towards ‘riskier’ assets such as the US equity market and AUD.
After spending much of Q2 below 12 USc/lb, prompt July futures have surged back towards 13 USc/lb.
Brazil continues to produce more ethanol over sugar, despite weaker WTI oil prices, with stronger demand for ethanol keeping ethanol prices buoyant.
The question remains if and how much sugar India will export this year. If the Indian government can solve the supply glut, then prices are expected to come under pressure again.
Macro/currency commentary
A busy few weeks for the AUD as the Reserve Bank of Australia (RBA) cut interest rates at its latest meeting and indicated more cuts are on the way in 2019.
This week we saw the US Federal Reserve leave rates on hold at 2.5%.
The AUD continues to trade near USD 0.69. Topside resistance is expected if the market returns toward USD 0.695.
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