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QSL Market Update – 27 April 2022

Raw Sugar prices

OVERVIEW: The ICE 11 raw sugar market finished last week sharply lower as risk sentiment collapsed from US dollar strength and Chinese lockdowns. The May 2022 contract traded from a high of 20.32 USc/lb on Monday, down to a low of 19.21 USc/lb on Friday and closed the week at 19.24 USc/lb.

India: The tail end of the India crop continues to perform strongly with 305 mills still crushing into the second half of April, compared to only 170 at the same time last year. A total of 33 million metric tonnes (mt) of sugar has now been produced, an increase of 13% year-on-year, which leads to a forecast total production of 35.5 million mt.

Brazil: Ethanol parity may have found its peak and has started to slip lower as spot parity is calculated at 23.50 USc/lb equivalent, after the Brazilian real (BRL) weakened 3.76% to 4.79 BRL. It is quite probable that Brazilian mills will start the harvest at max ethanol to make the most of the premium available above sugar prices over the coming weeks. 

Commitment of Traders (speculator activity): The Commitment of Traders report dated 19 April reveals speculators had trimmed their net long position by 12,000 lots, down to 175,000 lots net long. On a live basis, this number is expected to be significantly lower given the sell off in commodities driven by weaker market risk sentiment. 

Currency

Overview: The Australian dollar slipped lower across the week, driven by weakening risk sentiment from COVID cases across China and fears of rising interest rates in the United States. The AUD traded from a high of 74.58 US cents on Wednesday, down to a low of 72.35 US cents on Friday.

China: Chinese capital city Beijing recorded 41 COVID cases over the weekend, sending locals into a panic buying frenzy ahead of expectations of a city-wide lockdown as China insists on its zero COVID policy. Markets have become concerned over the compounding effect of lockdowns in Shanghai and now potentially Beijing, causing risk off sentiment to ripple through markets.

Oil: Both oil contracts, Brent Crude Oil and West Texas Intermediate (WTI), closed the week close to 5% lower, likely driven by fears of US Federal Reserve rate hikes and China’s lockdown/s. Brent Crude Oil finished the week at $US106.65 and WTI at $US102.07 a barrel.

USA: President of the Federal Reserve Bank of St. Louis, James Bullard, suggested that a 75 basis point interest rate hike would not be off the table at its May meeting as they look to front load their tightening policy in order to curb inflation. Markets however, have priced in only a 50 basis point increase at this stage. 

Coming up: Markets will keep a close eye on the Australian CPI data release (Wednesday, 27 April)) for an indication into whether the Reserve Bank of Australia will be required to raise rates at its May meeting next week.

This is a whole-of-season ICE 11 price chart for the 2022  Season, based on the current 5:1 pricing ratio applicable to QSL Target Price Contract growers.6
Source: Bloomberg

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