Sugar is trading in a narrow range as oversupply continues to weigh on world markets.

Last Friday saw the October 2019 US raw sugar futures close USc12.24 per pound, a 1.6% fall on the day.

Monday saw a rally to 12.49, which broker Sucden Financial said was prompted by reports of a frost in central southern region of Brazil over the weekend.

The analyst warned it would take time to quantify any damage to the sugar cane crop there, adding “it is not as if there is a lack of alternative supply”.

“The (Friday) fall simply undid the previous day’s gains,” noted Tobin Gorey of Commonwealth Bank of America. “And those gains undid the previous day’s losses. The market has, net, gone nowhere. And even casting back a week there is similarly little change.”

Mr Gorey observes that the market is simply waiting for a time “when there will be somewhat less
sugar available. But even that eventuality will be “supportive of current price levels but not much more”.

Sucden noted that the October 19 contract has traded in the $12.20 to $12.70 range with a 20-day average at $12.66, the 100-day average at $12.81, and 200-day average at $12.99.

Frost fears premature?

“We see no reason for the market to move out of its current range in the short term,” said Sucden senior trader Nick Penney.

“Frost fears in CS Brazil may have been premature. For sugar cane, frost damage takes much longer to assess anyway.”

Looking further ahead, the latest Marex Spectron Monthly Sugar Report projects that weather-related reductions in the Brazilian, EU and Thai sugar crop estimates, partially offset by a bigger crop projection in India, point to a possible loss of supply of some 1m – 1.5m tonnes of sugar for the next world marketing year.

“The coming 12 months really do look like a rerun of the past 12 months, with a slight upward bias,” stated Marex.

“The sad conclusion has to be that even if we need a bit more supply, this can easily be found by the sugar mix merely moving from say 35% to 37/38%. That would still leave the sugar price even more tightly tied to the ethanol parity.”