SUGAR MARKET OVERVIEW
Following the volatile October expiry, prices have settled into a small tight range on low volumes. Producers seem happy to sell approaching and over 17c, and we suspect anyone that needed to buy sugar would have taken advantage of the large slide in prices pre expiry. It seems to us, no one is in a hurry to transact business right now.
Similarly, we are looking for trade flow surpluses to dominate in the first half of the 2015 and are looking for Mar/May spread to widen out further into carry. There is a very diverse range of opinion on the upcoming Thai crop. On the bullish side, the eﬀect of the drought could lower the crop sub 100 mmt, and on the bearish side the additional cane acreage could see a small increase in production over last year’s 110 mmt. We are watching this closely. We noted with interest the changes to the gas prices in India, with the government removing some controls. We wonder whether this new attitude will also translate into a greater reluctance to intervene in the sugar market through an export subsidy.
CURRENCY MARKET OVERVIEW
Despite large moves in various markets (equities, fixed income and some currencies) AUD/USD has found itself trapped in a newly established 8650–8900 range. Very near term there seems little impetus for us to break out of this range. The lack of follow through would suggest a test of the lows at some point in time but short term we are happy to bide our time and wait for the opportunity. The original target of an overshoot to the low 80’s is still on the cards, we are just being patient now.
USD/BRL has been caught up in some of the USD volatility. A very large weekly range of 2.50 to 2.35 was witnessed as stops were triggered and the market tries to decide between a Dilma or Neves victory next Sunday. A small GS survey suggested a Dilma win would take the currency to 2.59 and a Neves Victory to 2.32. With views like this, volatility seems certain to persist.