Brazilian sugar spot liquidity capped by futures volatility

New York — The high volatility of the Intercontinental Exchange's No.11 sugar futures contract, trading Jan. 4 at its highest level in more than three years, kept trading houses out of the spot market and in a wait-and-see mode.

Despite the lack of spot demand, the uptick in the futures contract triggered a spike in the Platts flat price assessment for Brazilian VHP sugar for January loading on Jan. 4, assessed at 15.70 cents/lb, the highest since May 23, 2017.

The Platts Brazilian VHP sugar premium for January loading was unchanged at 7-point premium to the March (H) Sugar No. 11 Futures.

According to S&P Global Platts Analytics, part of the sugar future rally can be attributed to disappointing harvest data from Thailand, Central America and even Uttar Pradesh in India, raising worries about tight supplies.

In addition, Indonesian import licenses for the first half of 2021 are5% higher on the year, which can mean increased demand for Brazilian producers in the first months of the Center-South crop season, which officially starts April 1.

The rally is opposite to what was seen in early December, when the Indian government's subsidy for 6 million mt of sugar to be potentially exported to the international market weighed on the futures contract. On Dec. 14, the March (H) Sugar No. 11 futures contract settled at 14.12 cents/lb, a drop of 8.73% from Nov. 16's 15.47 cents/lb settle, the second-highest settlement of the year.

The contract settled at 15.49 cents/lb on Dec. 31.

Brazilian trading activity is not expected to rebound while traders are still digesting how the recent fundamental bullish news could potentially be converted into demand higher than previously estimated.