Raw sugar futures have remained in a downward bias over the last week. A midweek run toward 20.50 USc/lb appeared weak-kneed as prices fell on reports of a Chinese import quota of 1.8 million tons by Government. An import quota will be key for prices in the short/medium term as this could bring demand forward with much expectation for front loading of pricing. Given this duty, we expect smuggling to increase as a result.
The latest UNICA report was released as expected, with cumulative production now at 33.5 million tons. Final production is expected to finish near the 35 million, estimated earlier. Brazil focus now shifts to next year as much debate around yields and sugar mix arise. In India, the producers association (ISMA), predicts the current crop at 23.5 million tons. This suggests that imports may be avoided for the coming year.
With minimal change over the past week, we maintain our short term view of sugar in the 18–20 USc/lb range. Further clarity around fundamentals and speculative positioning will remain key going forward.
CURRENCY / MACRO COMMENTS
OPEC developments headlined the first half of the week as rumours no agreement would be reached, were quelled by a decision to cut production by 32.5 million barrels per day. The USD posted strong gains as the AUD slipped below the recent 74 cent handle. Friday’s US payrolls data was mixed, limiting USD gains.
Looking ahead, this week we have the RBA meeting, alongside local, US and Chinese trade data as key data drivers. The RBA are not expected to cut rates tomorrow however, particular attention to the accompanying commentary will be of interest.
The AUD appears more comfortable in a 72–74 US cent range. Commodities and oil are more likely to rollover before we see weakness in the USD. With this in mind, the AUD will struggle to gain traction above 75 cents.