Tuesday December 21, 2021

World sugar futures settled 15 higher in March at 18.74, 12 higher in May and from 10 higher to five lower in the back months. Outright traded volume was 84,507 lots. On spread, March/May traded from 34 to 41 over and last at 37 over. May/July traded from 25 over to 30 over and last at 27 over. The broader markets reversed from Monday’s whipping, and sugar went along for the ride, though with little of the enthusiasm seen elsewhere. WTI crude rallied steadily through the sugar session and was trading at $71.40 – up 4.1 % as Sugar closed for the day. The BCOM Index was up 1.85 % this afternoon and the Softs subindex up 1.72 % while sugar closed 0.8 % higher on the day.

Option watch: Option volume was 10,329 contracts consisting of 8,752 Calls and 1,577 Puts. Volatility closed out the session with small losses across the board. Trades of note: 500 February 19.00/19.50/20.00/20.50 Call Condors trade 10 (paper buys), 500 February 20.25 Calls trade 6, 250 February 19.00/20.00 Call Spreads vs 18.00 Puts trade 5, 1,015 March 20.00 Calls trade 26- 28, 650 March 20.50/21.50 Call Spreads vs 18.59 trade 9, 250 May 20.00 Calls trade 41 and 200 March’23 17.00 Puts trade 103-104.

ATM Vol’s: February 18.75 Straddle 81-86 - vol 19.95, -.60 % March 18.75 Straddle 129-133 - vol 22.35, -.20 % May 18.50 straddle 183-187 - vol 22.05, -.30 % July 18.00 Straddle 215-217 - vol 21.60, -.10 %

Option Open Interest: Calls 341,064 +2,002, Puts 237,774 +916 - total 578,838 +2,918

Mills in Brazil’s north-northeast have already crushed 33.12 million tonnes of sugarcane, producing 1.47 liters of ethanol through November 30, according to NovaBio. The mills are expected to produce a total of 2.3 billion liters of ethanol this campaign. NovaBio's estimates that the north-northeast will end the crushing of the current crop with a total volume of 54.22 million tonnes of sugarcane, 4.2 % more than in 2020/21. Over the last week, rains improved considerably in the Brazil’s center-south, except in São Paulo, Parana and Mato Grosso do Sul. All other sugarcane regions showed rainfall above the historical average during the period. In the northnortheast region, rainfall is above the historical average, according to JOB Economia. Brazil won’t need to import ethanol given sufficient supply from corn ethanol which should reach 3.5 billion liters in 2021/22 - up 36 % on the year. Corn ethanol output should reach 4.6 million tonnes in 2022/23, the equivalent of 60 million mt of cane.

In the USMCA region: US futures settled 25 lower in March at 36.25 and unchanged across the balance of the board today. As was the case yesterday, a 100-lot trade in May at 36.60 accounted for all of the day’s activity. It was a busy day news-wise, however. Workers at four Kellogg cereal plants voted to ratify a new five-year labor contract, ending a months-long strike. Data from Conadesuca shows that during the first two months of the fiscal year, sales of sugar in the domestic market are down 7.0 % at 594,759 tonnes. Exports jumped from 17,412 tonnes last year to 109,377 tonnes this year and sales under the IMMEX program were 21 % higher at 58,911 tonnes. Ending stocks were nonetheless 36 % higher than last November 30th at 458,125 tonnes.

The USDA announced a 432,657-short ton increase in the FY’22 Overall Allotment Quantity (OAQ), increasing the beet allotment by 235,149 tons to 5.871 million tons and the cane allotment by 197,508 tons to 4.931 million tons. This was done to ensure that all beet processors had adequate allocation to market 100 % of their production. While the initial beet allocation of 5.636 million tons was already large enough to allow 100 % of the crop to be marketed, processors with surplus allocation were apparently reluctant to prematurely relinquish their rights. In any case, the increase raised the total OAQ to 10.803 million tons – 1.562 million tons above the production estimated in the December WASDE. The beet allocation is 478,000 tons above the production estimate and the cane allocation is 1.084 million tons over the production estimate.

Under the Farm Bill Sugar Title language, the Secretary of Agriculture is charged with reallocating deficits within each state initially, and next within the broader cane and beet sectors. If after these reassignments the deficit cannot be complexly eliminated, “the Secretary shall reassign the remainder to imports of raw cane sugar.” In years past, the Secretary has simply assigned surplus allocation “to raw cane imports already anticipated,” typically from Mexico. However, this year Mexico’s exports to the US are estimated at just 1.065 million tons. Perhaps imports of high-tier sugar and/or the 220,460-tons of additional imports announced under the Specialty Sugar Quota above the WTO minimum can be similarly accounted for, but even all of this would not offset the 1.562-million-ton allocation surplus. Should the estimate of domestic production decline in the next few months, it will increase the deficit in production/surplus in allocation. It is not clear to us when the reallocation process is meant to take place, but this concept is worth paying attention to.

Regards,

JSG Commodities This email address is being protected from spambots. You need JavaScript enabled to view it. (203) 853 3000 JSG Indications: Q4'21 Q1'22 Q2'22 Q3'22 Q4'22 Q1'23 Raws: 37.00 36.50 36.60 36.75 36.25 33.30 Mexican peso: 20.8104 Raws: “Fair value” #16 futures pre-close, or JSG estimate.

This report has been compiled for general informational purposes only. While efforts have been made to ensure accuracy, Jenkins Sugar Group, Inc. assumes no responsibility for errors and omissions.