SUGAR UPDATE

The sugar market has been in a sideways range for the last 13 weeks. The bullish and bearish forces in play haven’t changed dramatically in that time, but volumes have been low, suggesting the range will eventually break. To recap, the bullish camp are pointing to flat production growth in Brazil next season, a lack of rain in Thailand leading to no materially additional production next year and a crop in India not big enough for material exports the following year. The bearish camp point to the fact we have rallied 70% off the lows, the spec position is still hovering at record longs and where domestic prices are at record levels, producers will find a way to increase production to capture the better prices. The result of this has been a waiting game with sideways action.

So what happens next? There is good consensus the market will move higher into either the end of this year or early next year as the forecasted trade flow deficits materialise. Short term, the question of whether ample Brazilian supply and a good monsoon in India will be enough to wash out the very large specula ve long position. after that, the market will require production to bounce back significantly from 16/7 levels to stop this one-year bull market turning into a three-year bull market. Commentators open underestimates the ability of the market to solve problems and when prices are at record levels there is every incentive for them to solve the deficit. But it will be very much weather permitting. All the risks are to the upside.

CURRENCY COMMENTS AND FAREWELL:

Currency markets are also trapped in a sideways range lacking real conviction for the next big move. The RBA has cut rates again, although the banks failed to pass on much more than half the cut and the currency rallied. It could easily be argued Governor Stevens shot a bullet and missed. Given this, the hurdle to cut again remains very high. In his final speech he added to the growing list of Central Bankers calling for governments to do more to stimulate economies noting the benefits of additional central bank easing are very close to being outweighed by the costs. Following her speech at Jackson Hole, Chairwoman Yellen has left the US market 70% priced for another hike by the end of this year. Whether that will enough to break the market out of this range is a question only to be answered in me.

After nearly three years, I have resigned from QCS to pursue other interests. I would like to wish all growers the best of luck for this and future seasons and thank everyone for the opportunity of working here. Kind regards, Chris Browning.