SUGAR MARKET UPDATE
March 15 sugar opened the week lower, following the Brazilian election, squeezed for the next two sessions and closed the week near its lows. Whilst the recent lows of 15.90 have held, a test of these to contract lows at 15.50 seem on the cards. Volumes have been poor, highlighting that these levels aren’t facilitating trade. As we have spoken about previously, here and now, there is no rush. Producers have months to run on this current contract (and generally speaking are getting a boost from the USD in their local currency) and consumers have had plenty of time to purchase at much cheaper levels (with the collapse of the October contract).
There have been rumours of Chinese buying for out-of-quota imports but we caution against assuming they will be able to hold the market at 15.80. Remember back to the October contract at 16.80 – when it broke, those levels were never seen again.
We are closely watching the rain falling in Brazil at the moment, and looking to see the eﬀect of this on next year’s crop development.
The USD has continued to firm against most currencies following the FOMC decision last week to end its Quantitative Easing (QE) Programme. The AUD has traded within its newly established 0.8650 to 0.8920, testing the top of the range before the Fed meeting and falling away to close the week on its lows. We are still looking for a break of the bottom of this range to 85 then the low 80s.
USD/BRL traded in a volatile range across the week, rallying after the election, the falling away after the central bank (COPOM) raised interest rates 25 basis points to 11.25% in a surprise move. As we spoke of last week, we have a bleak outlook for the Brazilian economy. Tightening interest rates into an economy in recession, isn’t good for the economy in the short term, and the currency has confirmed our view, moving back to near 2.50 last night.