The international sugar market has been finding some selling pressure today, perhaps given to a weekend forecast for some rain in Sao Paulo, but volume in the market today before the three day Memorial Day weekend is light as it is down 43% in relation to yesterday. Yesterday we saw what looked like a spec short covering rally, but it gave almost everything back. Yesterday’s peak at 18.57 ran into not only origin selling above 18.50, but also the release of stronger than expected US economic data which led to a rally in treasury yields, a recovery in the US dollar and a drop in the stock markets and thus commodities. The debate between interest rates remaining elevated or will they get cut swayed back to “higher for longer”. The reaction to the data may have been more severe than normal given the reduced liquidity of the markets because of the proximity to the Memorial Day holiday this weekend.
In sugar news after the close, Platts put out their preliminary estimates on the first half of May UNICA crush, which showed crush (45.6 MMT) an increase of 0.7% over last year, a big difference from the second half of April data which showed a 61.3% increase. Sugar production at 2.82 MMT is showing an increase of 6.3% over last year though a comment from one trade house believes the number will be closer to 2.5 MMT which would be an increase of only 1.65%.
The ATR (126.5) is expected to show an increase of 0.9% from 2.8% last report and an 6.5% increase in the mix, (51.3%) instead of the 11.1% increase last time. A much more modest report than the strong start we saw in April. But there is more. A preliminary April ag yield number is expected to show only 75 t/ha, a drop of 11.3% in relation to the 84.6 t/h we saw last year. If this is correct, this would be a surprise as early April yield numbers were supposedly showing improved numbers due to the left over cane that was initially harvested.
Given that yield numbers are expected to decline in May, the low number for April should be supportive, but technically the failure above 18.50 has the market capped for now. But the underlying spreads are sustaining relatively well and the robust export lineup with China leading the way on destination is most likely behind that.
Macro is struggling after the strong PMI data yesterday with crude barely holding the lower edge of the recent trading range, but the S&P 500 posting a negative outside day yesterday looks rather ominous. Not sure what we can expect on a Friday before a three day weekend. July sugar support, 18.20, 18.11, 18.05, 18.00, 17.95, 17.86, 17.77, Resistance, 18.30, 18.35, 18.41, 18.50, 18.57. 18.62, 18.67, 18.76, 18.80, 18.89.
By Michael McDougall, Managing Director, Paragon Global Markets, LLC,
