The sugar market spent the month of November trapped sideways significantly oﬀ the September lows. The market is grappling with opposing forces as spoken of previously (dryness in many production areas and too much rainfall in Brazil against an Indian subsidy which may release 2–2.5mmt (but up to 3.2mmt) on the world export market, plugging most of the perceived production deficit for next year.
Technically the fact the market has been unable to sell oﬀ through 14c bodes well for an eventual move higher, but the short-term spec position (+208k) would suggest the marginal buyer has probably been filled at these levels.
The structure of the curve may be telling to past price action. The inverted curve (March above May) would suggest the market is trying to solve the short term trade flow deficit problem and bring forward to sale of future sugar. This makes complete sense until the Indian export was announced, which above 15c where exports make sense, they can fill the deficit themselves. So the curve should be moving back towards flat or even carry around the 15c mark. The fact this hasn’t happened could be a result of positioning (trade market has been short march and needing to unwind) or something else. We are watching this closely.
GLOBAL MACRO UPDATE
The market is in limbo wai ng to see what the Federal Reserve is going to do at the December 17th meeting. Chairman Yellen speaks twice this week, and on Friday the all important Non-Farm Payrolls number gets released. Currently, it appears the Fed will be looking to raise rates to 25bp prior to Christmas, although any change in rhetoric this week will see the market remove the pricing for the hike.
Australia was given some clear guidance last week when Governor Stevens told the market to “chill out” when looking for a December cut. This has left AUD/USD subject to the crosswind of a market that is very long USD (AUD positive) against a commodity complex under pressure (oil sub $40, iron ore sub $43 – AUD negative). AUD/USD has been sideways in the 70–74 range since July and until the macro situation becomes more clear looks likely to stay there.
USD/BRL pushed higher last week as the political situation in Brazil appears to be getting worse rather than better. The leader of the senate was arrested in a police operation looking at the ongoing Petrobras corruption scandal. A move through 3.84 targets a push back to 4 in the near term.