Sugar rallies again, on Chinese demand

(Agrimoney) – Sugar prices rallied again on Thursday, while wheat prices were weaker on ideas of ample global supply, and rallying energy prices supported the soy complex.

Sugar prices rallied for a second day running, helped by increasing ideas that more sugar is being smuggled into China than previously thought, as well as dry weather in India, and the end of a period of index fund rebalancing.

Sugar markets have got through a five-day period of index rebalancing, which is thought to have pulled about 40,000 long positions from the market.

With this rocky time negotiated, speculators may be minded to cover short position.

And fundamentals are also looking stronger, as Reuters reports that a government official in Maharashtra, India’s main sugar producer, saw the crop down around a third year-on-year, due to dry weather.

Increased smuggling

Markets are revising their estimates of Chinese sugar demand, as it becomes clear that large amounts of white sugar are being smuggled into the country through Myanmar, without appearing in customs data.

“Reports of increased smuggling of whites into China from Myanmar and Thailand continue to circulate and given high domestic prices there and also in India and Brazil, whites is becoming the “story”,” said Nick Penney, senior trader at Sucden Financial.

“This should have a knock on effect on the raws as current whites premiums should encourage refiners to step up production to meet the demand,” Mr Penney said.

March white sugar settled up 1.3%, at $428.40 a tonne.

March raw sugar settled up 2.8%, at 14.88 a pound.

Cut to output

Coffee prices retreated, despite a 1.88m bag cut to 2014-15 production ideas from the International Coffee organisation, to 141.39m bags.

Vietnam, the world’s second-ranked producer and top robusta exporter, saw 2014-15 output downgraded by 1m bags.

And global output was seen only modestly higher, at 143.4m bags, in 2015-16.

But Vietnamese output was seen stronger, at 27.5m bags.

The 2015-16 harvest is about to begin in Vietnam, adding pressure to prices.

March robusta futures in London settled down 1.3%, at $1,438 a tonne.

Brazilian output

But the ICO saw 2015-16 production in Colombia, the second-ranked arabica producer, rising to 13.5m bags, but the arabica crop in Brazil was seen falling by 1.7% year-on-year, to 43.2m bags.

March arabica futures settled up 1.0%, at 115.90 cents a pound.

March New York cocoa settled down 1.2%, at $2,857 a tonne.

Markets are awaiting data on European grinding, a proxy for demand, which is expected to show processing down 2-5% year-on-year in the last three months of 2015.

Chinese draw down

Cotton prices fell as markets weighed the prospect of Chinese selling against some strong US exports.

Net export sales of upland cotton over the last week were up 68% from the 4-week average, at 171,000 running bales.

And sale of pima were strong as well, as 27,000 running bales.

“It was a positive report, one of the better sales report we’ve seen recently,” Jack Scoville, analyst at Price Futures group, told Agrimoney.

But Chinese authorities are reported to be in consultation, over the possibility of resuming sales from the estimated 11m tonnes of state inventories, which could suppress demand from that country still further.

March cotton futures settled down 0.4% at 61.90 cents a pound.

Rains in South America

Conditions for the Southern Hemisphere grain harvest remain good.

“Rainfall has increased across Northern Brazil over the past ten days,” said Kyle Tapley, of MDA Weather Services. Above normal rainfall is expected for the next 15 days in Mato Grosso, Brazil’s top corn and soybean growing state, closing the shortfall between this year and the 30-year average.

“Conditions remain generally favourable for crop development across most of Argentina,” Mr Tapley said.

And Richard Feltes, of RJ O’Brien, noted a “wet week” for South Africa as well, which should further ease dryness in the Corn Belt.

Raised Argentine sowing

US export sales for corn in the last week came in ahead of expectations, at 669,000 tonnes, where markets had expected 400-650 tonnes.

The Rosario Grain exchange upped their forecast for Argentine corn production by 3.6m tonnes, to 23.8m tonnes.

The increase, which comes from ideas of larger corn sowings, lends credence to suggestions that Argentine row crop farmers are favouring corn sowings, after political reforms made exports easier and more appealing.

But the number is still behind the USDA’s forecast of 25.6m tonnes.

March corn futures edged up 0.1%, to $3.58 a bushel.

Shift in Egyptian policy direction

US wheat export sales were 274,00 in the middle of trade estimates of 150-350,00 tonnes.

The Rosario Grain Exchange left Argentine wheat crop estimates unchanged at 9.6m tonnes.

“Cheaper world offers of wheat in the export market and a strong US dollar continually plagues an US market that is amply supplied.” said Kim Rugel, of Benson Quinn Commodities.

It was reported that Egyptian imports of wheat will continue to be allowed to contain up to 0.05 percent level of ergot, unchanged from earlier requirements.

The quarantine body for Egypt, the world’s top wheat importer, had previously said it would have a zero-tolerance policy on ergot contamination.

March wheat futures fell 2.0%, to $4.68 ¾ a bushel.

Strong soyoil sales

US soybean export sales were in line with expectations, at 1.13m tonnes, where analysts forecast 0.9-1.3m tonnes.

Soymeal export sales were also in line with export sales, but soyoil exports were reported at 41,200 tonnes, where markets had looked for exports of 5,000-20,000 tonnes.

March soymeal finished up by 0.5% at $269.7 a short tonne. March soybeans rose 0.3% to close at $8.82 ¼ a bushel.

And there was more support for soyoil, as oil markets finally found some strength.

Brent crude rallied 2.3% $31.00 a barrel as Chicago markets closed.

March soyoil rose 1.0% to finish at 29.68 cents a pound.