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• The No.11 is vulnerable to further selling pressure.
• Speculators are now probably neutrally positioned and could go short with recent BRL and crude weakness.
• Brazilian mills are unlikely to buy back shorts and have more to sugar to sell.

More Selling to Come…  

• Producers are currently very short in the sugar market, having been at a record in the last two weeks.

• In the previous two quarters we’ve seen record selling by producers.
• This selling was induced by the price rally in late 2019.
• The weak BRL gave Brazilian mills the opportunity to price at levels not seen since 2016.

• We estimate that Brazilian mills have priced around 70% of their sugar for next season.
• There is still more to be hedged, and they could increase their sugar production further if the market approaches BRL1500/mt.
• This is 14.50 c/lb in the N20 using forward FX.

• Brazilian mills are unlikely to buy back their hedges even if the No.11 reduces as crude prices are too weak.
• We expect specs to be neutral after the recent No.11 weakness.

• They could move shorter still, pushing the market lower, especially if the BRL and Brent Crude Oil continue to weaken.

Who Will Be There to Buy the Market?

• Consumers should be well-covered for 2020.
• The trade is probably long and could therefore be vulnerable.
• How do we know the trade is long? They helpfully told us at the Dubai conference that they were all bullish.

• The trade clearly underestimated the risk from coronavirus; they actually attended the Dubai conference a month ago.
• Seeing how things have escalated, going to a conference today would be considered
  madness…
• Of course, the sugar market will rebound higher at some point.
• But we think the order flow risk is heavily to the downside in the short to medium term.