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SUGAR
195 Route 6A, Suite 6, Orleans, Massachusetts
(July 2, 1997) SUGAR: El Nino could end up being a threat to Asian sugar producers. Thailand is one of the top sugar producers in the world, so a problem there could make its presence felt. There are concerns at this time that up to 10% of the crop is at risk. China, too, is a large sugar producer, and problems in their sugar regions could spur sugar much higher. This should stay on your radar screen.
RECOMMENDATION–October sugar continues to hold support in the low 1100's, so traders might consider buying dips to the low 1100's with stops under 1075 or 1055. If more conservative, hold out for a selloff to the 1090's. Objective is open. Option traders should consider October calls on dips.
M. Steven Morgan
One New York Plaza, New York, New York
(June 30, 1997) SUGAR: The major market feature last week was the rolling of speculative longs out of the July contract ahead of the contract's June 30 expiration. This selling pressured the July/October spread, with July moving to a discount of about 20 points last week compared with a roughly 20-point premium to October in early June.
Cash dealings have remained relatively subdued, depriving futures prices of a potential source of support. Even the “rumor mill” has been quiet, there being virtually no talk or speculation regarding new, large-scale Russian or Chinese buying. Russia, however, has been in the news in another context. Since the May contract's expiration, it has been generally believed that some of the Brazilian sugar tendered against that month was being shipped to Russia. Many traders thought this sugar had a polarization of more than 98.7%, making it subject to Russia's 25% duty on white sugar imports. Thus, it was likely that the seller would find a different home for these shipments; this perception may have contributed to the market's weakness in mid- June. However, on June 25, it was announced that Russian customs authorities had classified Brazilian imports as raw sugar, subjecting them to a tax rate of only 1%. This development may have been a factor in the market's strength that day.
Trade sources believe that Brazil may have sold up to about 120,000 tonnes of whites to Pakistan and several Middle East nations over the last several weeks. As a result, China (a traditional supplier of white sugar to those countries) is likely to find that it has been shut out of these markets for the time being. (The Brazilian price was said to be around $340 per tonne, c. & f. Pakistan; China's price was reported at about $375 per tonne, c. & f. Pakistan). On June 24, a Pakistani official stated that in order to protect the domestic sugar industry, no further imports would be authorized this year. The loss of these markets by China would make tolling far less attractive and presumably would cause Chinese traders to cut their raw sugar imports.
The USDA is forecasting China's 1997/98 imports at 2.4 million tonnes, about 17% above the year-ago figure. This statistic probably will be the market's most closely watched figure for China over the next few months. Any indication that China's imports might fall substantially short of expectations would have negative price implications for #11 sugar futures.
F.O. Licht, the German commodity publishing firm, recently released its third projection of the global 1996/97 statistical situation. With the market now focusing on initial statistical indications for 1997/98, we do not ascribe too much significance to Licht's revised data. Licht's revised data. Licht's latest projection is that global stocks will rise to 48.4 million tonnes at the end of 1996/97. While that figure is below the previous forecast of 49.2 million tonnes, it represents an increase of 1.7 million tonnes versus 1995/96.
World sugar futures have been trading between roughly 10 cents per pound and 12 cents for almost a year. We see no change on an intermediate-term basis, but have an upside bias within that range.
Arthur Stevenson
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