wmeubank@ocp.kcmo.com
PRUDENTIAL SECURITIES, INC.
One New York Plaza, New York, New York
(November 17, 1997) SUGAR: World sugar futures were firm last week, but unable to push through the contract high of 12.44 cents per pound, basis March. The spreads also remained relatively firm, with March/October holding to a roughly 46-point premium versus a premium of 10-20 points during most of October. The market's firmness was based on improved physical offtake and a sharp decline in European Union export authorizations.
Market talk concerning Russian buying circulated freely all last week. Some traders believe Russia may have purchased 150,000-200,000 tonnes for shipment by the end of February, likely from Brazil. While we cannot confirm this number, we certainly agree that purchases of this magnitude would be price supportive. The purchase reflects the ongoing production problems in Cuba, a major Russian supplier, as well as poor output prospects in Russia and Ukraine.
Cuba's cane harvest is expected to commence in late November. There is concern that because of the ongoing El Nino phenomenon, average temperatures and rainfall could increase in early December, with potentially grave consequences for harvesting and processing. (Cuba's cane harvest normally runs from November to May, which also tends to be the country's dry period.) Unofficial governmental and private projections put Cuba's 1997/98 sugar output at about 4 million tonnes versus 1996/97 production near 4.4 million,
Dry conditions in parts of Thailand (particularly in the central and eastern cane-growing regions of the country) continue to act as a long-range price-supportive factor. The Cane and Sugar Board recently projected 1997/98 output at 4.62 million tonnes, which would constitute a gigantic drop from the 1996/97 output near 6.3 million.
A comparison of the European Union's weekly export authorizations during 1996 and 1997 shows that as of November 13, the cumulative authorizations were 1.27 million tonnes versus last year's level of 1.02 million tonnes. This year's authorizations were sharply below the year-ago figures for the last two tenders (November 5 and 13), which we believe has contributed to the market's recent relative strength.
Futures are trading near their contract highs. In the absence of fresh large- scale physical buying, bulls may be tempted to take partial profits at this stage, which would be a price depressant. While the near- term price outlook is for a more two-sided market, we continue to expect price appreciation over the longer term.
Arthur Stevenson
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