SUGAR: Impressive Recovery Bounce and May Consolidate 3-Day Gains

Sugar's abrupt turnaround at the end of last week recovered a sizable portion of the market's losses during its April/May pullback. Although strength in key outside markets continues to be a major factor, sugar has seen bullish supply development that can fuel an extended recovery move. Crude oil and RBOB gasoline extended their recovery move which in turn provided the sugar market with carryover support. Brazil's Center-South mills have shifted a portion of their crushing from sugar production over to ethanol production during the first month of their 2022/23 season. There were several Center-South mills that began their operations before the traditional start of harvesting and crushing in early April, with the vast majority of their output over that timeframe devoted to ethanol production.

In fact, Archer Consulting revised down their 2022/23 Center-South sugar production forecast from 33.0 million down to 31.5 million tonnes. This compares to Center-South 2021/22 production of 32.064 million and was due in part to lower cane yields as a result of drier than normal conditions. In addition, a rebound in the Brazilian currency provided additional support to sugar prices as that eases pressure on Center-South mills to produce sugar for the global export marketplace. The long liquidation selling trend is a short-term bearish force. Sugar positioning in the Commitments of Traders for the week ending May 10th showed Managed Money traders net sold 22,278 contracts and are now net long 158,835 contracts. Non-Commercial & Non-Reportable traders net sold 20,885 contracts and are now net long 218,600 contracts. India and Thailand remain on-track for sizable 2021/22 production increases, and that will continue to be a source of headwinds for the sugar market early this week.

MARKET IDEAS

A positive weekly reversal should lead to early upside follow-through and if energy prices and the Brazilian currency can maintain their strength, the bullish shift in Center-South production can help sugar prices maintain upside momentum. Near-term support for July sugar is at 19.13, with resistance 19.63 and 20.00.