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Sugar #11 May '19 (SBK19)

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Sugar #11 Futures Market News and Commentary

Sugar Market News and Commentary

May NY world sugar #11 (SBK19) on Friday closed up +0.58 (+4.67%) and May ICE London white sugar (SWK19) closed up +12.90 (+3.77%). Sugar prices rallied Friday with May NY sugar at a 3-week high and May London white sugar at a 2-week high. Strength in the Brazilian real and in crude oil prices Friday fueled short-covering in sugar futures. The Brazilian real rose to a 1-week high against the dollar, which discourages exports by Brazil's sugar producers. Meanwhile, crude oil climbed to a 1-1/2 week high, which benefits ethanol prices and may prompt Brazil’s sugar mills to divert more cane crushing toward ethanol production rather than sugar, thus curbing sugar supplies. May London white sugar saw technical support after the contract on Friday moved above its 200-day moving average. May NY sugar tumbled to a 5-week low Thursday after India raised the minimum selling price of sugar by 6.9%, below expectations for a 10% increase. A higher minimum sugar price may prompt India's sugar millers to sell more sugar in the domestic market and potentially reduce its sugar exports and global supply. A positive for sugar prices is stronger demand for Brazil's ethanol after Unica on Tuesday reported that Brazil millers sold 1.83 billion liters of hydrous ethanol in the domestic market in Jan, up +32.5% y/y and a record volume for a January. Unica also reported on Tuesday that Brazil's 2018/19 Center-South sugar production during Oct-Jan was down -26.4% at 26.36 MMT, with 35.4% of cane used for sugar (down from 46.9% last year), and 64.56% of cane used for ethanol production (up from 53.1% last year).Big Picture Sugar Market Factors: Bullish factors for sugar include (1) Conab's hike in its Brazil 2018/19 ethanol production estimate to a record 32.2 bln liters (+18.6% y/y), citing the action by Brazil's sugar millers to divert less cane juice to produce sugar as global sugar inventories are seen rising and prices are falling, (2) concern about smaller global production after Unica forecasted that Brazil's Center South 2018/19 sugar production will fall -28% y/y to 26 MMT, (3) the action by India, the world’s second-biggest sugar producer, to raise the minimum selling price of sugar to 31 rupees/kg from 29 rupees/kg, which may prompt India's sugar millers to sell more sugar in the domestic market and potentially reduce its sugar exports and global supply, and (4) stronger demand for Brazil's ethanol after Unica reported Brazil millers sold 1.83 billion liters of hydrous ethanol in the domestic market in Jan, up +32.5% y/y and a record volume for a January. Bearish factors include (1) ISO's forecast that global 2018/19 sugar production will rise +0.6% y/y to a record 185.2 MMT and that there will be a 2018/19 sugar surplus of 2.2 MMT (vs 2017/18's 7.3 MMT), (2) USDA's FAS forecast for 2018/19 sugar production in India, the world's second-largest sugar producer, to climb +5.3% y/y to a record 35.9 MMT, (3) record sugar output from Thailand, the world's fourth-largest sugar producer, after the Thailand Office of Cane and Sugar Board reported that Thailand 2017/18 sugar production rose to a record 14.47 MMT, (4) a glut of U.S. gasoline after U.S. EIA gasoline inventories rose to a record high of 259.6 million bbl last month, which is negative for ethanol prices and may prompt Brazil's sugar producers to divert more cane crushing toward sugar production instead of ethanol production, which would boost sugar supplies.
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