The sugar market: The fundamentals remain bearish for 2017-2018

  1. major producing countries and production levels

Sugar is produced from sugar cane or beet. A distinction is made between brown sugar (Free On Bord side on the New York market) and white sugar (Free On Bord side on the London market). There are more than 130 sugar producing countries in the world. However, 10 countries account for about 78% of world production, including Brazil (23%), India (15%), EU-28 (9%), China (6%), Thailand (6%), the United States (5%), Mexico (4%), Russia (4%), Pakistan (3%) and Australia (3%).

 

>The specifications for sugar listed in London are:

  • Contract size: 50 tonnes
  • Quotation price: dollar and cent per tonne
  • Quotation deadline March (H), May (K), August (Q), October (V), December (Z),

 

>The specifications of sugar listed in New York

  • Tcontract size: 112,000 pounds (1 pound =0.453592kg)
  • Quotation price: us dollar per pound
  • Quotation deadline March (H), May (K), July (N), October (V)

 

The price of sugar is influenced by certain fundamentals, in particular the evolution of stocks, production forecasts, climatic conditions and any other geopolitical events that may disrupt the supply chain, in this case armed conflicts, strikes, etc.

In 2017, the price of brown sugar fell sharply (-11%). The abolition of production quotas imposed by the European Union on 1er October 2017 has not been conducive to improving things. It has led to a massive arrival of sugar on the international market. The latter is already saturated by a sharp increase in world production, whether in Brazil, Asia or India, and the decline in agrofuels made from sugarcane.

 

 

<However, analysts continue to monitor the price of ethanol, which is a very important driver of sugar prices. Brazil is a major producer of ethanol from sugar, traders will look closely at the break point between the price of ethanol and the price of sugar. Any impact in Brazil is highly significant on the world sugar market.

 

  1. b) Analysis of USDA bi-annual report

 

 

The production of ethanol from sugar cane in Brazil is a factor to be integrated into fundamental analysis. But the share of Brazilian production devoted to ethanol production is low, averaging 0.35 million tonnes over the last three years. The influence of this data on prices is small in a context where the expected level of production is high.

c- Technical analysis of the future sugar market quoted in London (Daily chart)

From the point of view of technical analysis, all moving averages (20, 50 and 100) are on a downward trend. There has been a downward trend since May 2017. This trend is in line with the analysis of the fundamental data related to production forecasts, which were based on lower consumption and higher production. However, there was a price change between November 2017 and January 2018 in a channel characterized by the range phase formed by price levels between $399.30 and $350.90. The next publications, particularly those to be published in May 2018, will provide a more precise market orientation by the end of the year.

Source: Zonebourse.com

Ayouba KELIMA

Ayouba KELIMA


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