Sugar has continued to push higher at the front of the curve with specs adding to an already record long. The market estimate for their position is around long 310k contracts (15.5mmt)!! Near term spreads have rallied as well, suggesting those expecting the market to move lower have begun to throw in the towel. The mood from NY sugar week was constructive, with the major question being whether near term the market has pushed too far and can we see a pullback.
There were a few major highlights :
- Even though specs are at a record long, talking to diﬀerent funds would suggest that they are only invested to 30% of capacity. They have a lot more room to buy.
- The range between most bearish and most bullish is very large.
- The big question is how much weather risk is being priced in at current levels. How much of the bullish story dissipates when the rain in Asia comes. It is raining at the moment (small) with the monsoon predicted to come and be larger than normal (109% of average).
- The range for the following year is even larger and is VERY dependent on rain in Asia.
CURRENCY / MACRO COMMENTS :
The US Federal Reserve has continued to keep the market on its toes with Chairman Yellen speaking on Friday night saying she expects the gradual pace of tightening to continue this year. The market now has a 50% chance of a hike by July priced. At the same point in time, the RBA will be watching the June CPI (July 27) with the market looking for a cut if this is benign. The sum total of this implies AUD/USD can stay under pressure in the near term. 74c was the top of the old range and so long as the market continues to trade below, a move back to the lows at 68c cannot be ruled out.
Iron ore has quietly fallen from $70/t back to $50/t as speculative trading in China was curbed through increased margins at the futures exchange. Over supply still dominates this market. Oil on the other hand has rallied back to $50, and this seems much more sustainable. US production has fallen dramatically as a result of lower prices and Canadian production has been disrupted following the wildfire.