wmeubank@ocp.kcmo.com
PRUDENTIAL SECURITIES, INC.
One New York Plaza, New York, New York
(October 27, 1997) SUGAR: March #11 sugar futures traded quietly last week within the range between 11.50 cents per pound and 12.0 cents that has been in place since late September. The sideways price action indicated that there was approximate equilibrium between positive and negative fundamental developments. On the positive side, there were reports of a pick up in physical buying; some traders believe that Iran may have purchased as much as 200,000 tonnes of whites this month. The major negative factor was concern over the well-supplied European market, with EU exports running substantially ahead of year-ago levels.
So far this month the March/May spread has traded in a very tight range around parity. While movement in this spread has remained moribund, other spreads (e.g., March/July and March/October) have been somewhat more vibrant. For example, March/October has widened by roughly 16 points over the last two weeks.
The European Union's October 22 tender resulted in authorization of export licenses for 155,400 tonnes of sugar versus 44,800 tonnes exported for the corresponding week a year ago; it was the fifth consecutive week in which exports exceeded the year- ago level, thus putting additional hedge-related pressure on the futures market. Cumulative export authorizations for the last five weeks totaled 677,000 tonnes, roughly 172% of last year's export licenses for the corresponding period.
The whites/raws premium has been narrowing since late July, with the downtrend accelerating sharply in September. Part of the explanation for this move was the improved EU production outlook. The premium has been somewhat steadier in October, probably due to the pick up in end-user whites physical offtake.
Rainfall in Russia during September and early October was reported to be far above the year-ago level, making it difficult to use combine harvesters in many beet-growing areas. As of October 20, Russian farmers had reportedly harvested only 6,7 million tonnes of beets, roughly 62% of the year-ago figure. Yields were reported at above year-ago levels, but clearly the final outcome is in doubt and will hinge on whether farmers are able to overcome recent harvesting problems.
The latest report issued by E.D. & F. Man foresees the global 1997/98 supply/use profile as “the tightest balance for four seasons.” Using an October/September statistical year, the firm's report projects a 283,000-tonne deficit. However, much of the tightness is attributable to India's anticipated stocks drawdown (presumably leading to lower import needs), so the overall statistical projection is less bullish than might otherwise have been the case.
We look for March #11 futures to remain within the 11.50- to 12.0-cent range for the near-term. Longer-range, we continue to look for higher prices.
Arthur Stevenson
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