Sugar remains in a state of flux, waiting for a clarity over a number of factors which can only be resolved through time. Producers are continuing to sit at and above the market in the hope of better prices to lock in, commercial buyers are sitting at or below the market, bringing forward demand to capture lower prices. The current swing factor has been the spec position, which has turned a small long at 13.60 into a large short position in the low 11c. Following the release of the Commitment of Traders report on the weekend a relief rally ensued, but it turned out to be a one-day rally with prices unable to sustain over the 12c mark.
On the bullish side we are witnessing continued ethanol demand and a sugar price below ethanol parity which should be supportive to the switch out of sugar. El Nino continues to cause headlines; higher rainfall may mean cane left in the fields and less sugar produced. At the moment the campaign is slightly behind last year but will catch up quickly if benign conditions avail.
On the bearish side, Indian rainfall has been good in the pre-monsoon period, and the current monsoon is above long-term average levels. The Thai crop for next year is also expected to be around current (record) levels in spite of less rainfall due to increased acreage.
Currency markets have been held to ransom from headlines flowing for the debt crisis in Greece. At the end of the day, individual currencies are unchanged over the last couple of months. AUD has been sideways for five months, EUR has been sideways since January (albeit in a 1.05 to 1.15 range). Even USD/BRL has stopped depreciating and been sideways since early March.
Similar to sugar, the markets are waiting for clarification of data in the US. Strong data will increase the chances of a September hike, weaker data will push that out to December or even March next year. For the time being, the data flow is leaning towards a either a September or December move.
There may well be some headline reaction to a deal in Greece, but in the end the world needs a weaker EUR (just as Brazil needs a weaker Reais, and the RBA wants a weaker AUD). We are watching the US data, waiting for a move in short-term interest rates there to give us confidence in the next leg higher in the USD. In the meantime, sideways action seems set to continue for the foreseeable future.