Thai raw sugar cash premiums under pressure from higher futures

15.11.2017
The cash premium for Thai HiPol March-May 15 fell 10.52% day on day to 68 points Tuesday on the back of a seven-day rally in prompt month New York No. 11 futures. 
 
New York No. 11 front month futures settled at 15.13 cents/lb Monday after a seven-day rally, the highest in over five months. It was last higher May 25 at 15.66 cents/lb, S&P Global Platts data showed. However, NY No. 11 futures eased 3 points day on day Tuesday to 15.1 cents/lb. 
 
"The March-May 15 cash premium was pressured lower by the strong March(H)-May(K) futures spread, which is in backwardation," a trader said. 
 
The March-May futures spread was backwardated at 9 points Monday, up 9 points from last Friday. The front-forward future month spread settled at a backwardation for the first time in over seven months, Platts data showed. It was last in a backwardation of 3 points April 13, the data showed. On raw sugar fundamentals, with Center-South Brazil in the inter-crop period and the ethanol floor in Brazil rising with higher global gasoline prices, the next few months looks more bullish than bearish, in part due to seasonal factors, S&P Global Platts Analytics said. 
 
The recent rally in futures prices was due to the bullish comments heard at the recently concluded Brazilian Sugar and Ethanol Week, at which Brazil's sugar mix next season (April-March) dominated discussion, market sources said.
 
State-owned oil and gas company Petrobras' new gasoline pricing policy has transformed Brazil's ethanol market and might have a direct impact on how producers allocate their sugarcane next season. 
 
The retail price at the pump is no longer affected by the exchange rate and is now the result of gasoline price adjustments that reflect international gasoline prices and also, potentially, the arbitrage for gasoline imports. 
 
S&P Global Platts Analytics estimates the sugar mix maximizing ethanol, leaving 46.3% going to sugar. The lower mix, combined with a lower ATR (total recoverable sugar) estimate of 134 kg/mt and an overall sugarcane crush of 575 million mt, should leave CS Brazil with total sugar production of 33.99 million mt in 2018-19, down 2.03 million mt from its estimate for this season. High NY No. 11 future prices supported by fundamentals will keep cash premiums in Asia under pressure, trade sources said. However one trader pointed to technical reasons keeping the prices buoyed and believed that correction was imminent.
 
 

Readers choice: TOP-5 articles of the month by UkrAgroConsult