19 August 2014

Weekly Marketing Report 19 August 2014


The Brazilian campaign is continuing at rapid pace, with a few rain delays that could add to a the likely short tail later on. ATR levels are higher and the sugar mix has remained elevated despite sugar trading under ethanol parity. The Indian monsoon is somewhat patchy with flooding in UP and drought leading to seed shortages in Tamil Nadu. Maharashtra mills are expecting to crush an additional 9mt of cane (+12%) All of these factors are continuing to weigh on the outlook for sugar price going forwards. Prices have remained under pressure with Oct 14 trading to new contract lows last (Monday) night. The narrowing of the Oct/Mar spread was a short-lived phenomenon, with the spread making new lows closing at –1.96 Monday. Historically this spread has traded as wide as – 2.40. On the positive side, a relaxation of the gas peg in Brazil post the election (+5–6%) and an increase in the ethanol blend mandate to 27.5% (from 25%) will lower sugar output in the 15/16 season, giving relief to downward price pressure from caused from the current oversupply.


The AUD continues to trade within a 9200–9500 range with very low volatility, last week only moving 1% from top to bottom. Fundamentals would suggest a lower currency v USD, although most of these factors have been suggesting that all this year. Unemployment is higher now in AUD than in the US.

Central bank policy is now close to moving in opposite directions (AUD—down, US — up) but that is a while down the track. Fed Chair Yellen will be talking at the Jackson Hole conference on Friday night on Labour Market Dynamics, and Australian Governor Stevens will be addressing parliament on Wednesday. Both of these speeches should add some colour to the future direction of policy.

Gold Market Overview: Gold is often seen as a safe haven, a hedge against inflation and a hedge against owning USD, the reserve currency. Gold has been trading sideway in a very tight band and has not reacted at all to tensions within the Middle East or Ukraine, suggesting a level of comfort in the market that these issues will be resolved through time and will not spread through contagion.

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