SUGAR MARKET UPDATE
Sugar rallied dramatically on Tuesday last week in what appears to have been a series of stop loss buying finding very little selling. More stops were triggered on Wednesday, over 1500, but they met with very strong selling from all diﬀerent types of sellers. There has been some talk about January being very dry in Brazil, but given the good December rainfall, and the forecast of above average rainfall for the end of January, we feel the ‘price has been driving the news’.
It has been observed regularly the whites market often leads the raws. This was certainly the case in March last year, when the market squeezed oﬀ the lows. On this occasion, however, the whites premium has moved lower, currently sitting at $63. This is another flag, suggesting the recent rally is unsustainable.
Spec positioning has reduced slightly from the near record short position, but there appears no meaningful catalyst in the near term for them to do anything more than lock in some profit.
The USD has continued its upward march following the end of QE. The market took some profit on their long USD trade coming into the end of last weeks Non-Farm Payrolls number. AUD/USD rallied nearly 230 points oﬀ its lows, but failed to push ahead from 8250 and has resumed the push lower. We are still targeting high 70 cents, with a number of investment banks downgrading their year end forecasts to be lower than this.
USD/BRL has retraced from 2.76 to 2.63 over the last few weeks. Whilst the government is making some of the right noises about fiscal restraint, the combination of a stronger USD environment and a lower terms of trade is putting continued upward pressure on USD/BRL. This will help to cap sugar prices, oﬀering producers with access to credit very profitable levels to sell forward production.
Often at this time of year, consensus trades get challenged. Short sugar and long USD are both very much in that camp. Both trades have been tested last week but it appears the trend will continue.