Sugar delivered in the October NY11 expiry at record high: sources

New York — The front contract October (V) of the ICE NY11 sugar futures contract left the board on Sept 30 with the preliminary delivered volume at 2.62 million mt, the highest historical volume for the V contract, according to sources.

Of the total volume delivered, 4,000 mt will be available at Veracruz port in Mexico, 4,521 mt in Argentina and the balance of nearly 2.6 million mt in Brazil, according to market participants.

Having Brazil as the primary sugar source was not a surprise for most of trading houses, as the country is increasing the sugar production in roughly 10 million mt in the CS crop 2020-21.

While a record-high volume could suggest a bearish sugar market, as the best buyer's choice was the exchange, the strength October/March (V/H) spread points to the opposite scenario.

In the last 10 trading sessions, the V/H spread traded at an average of minus 52 points, while in the last three sessions, the spread narrowed to an average of minus 44 points.

A narrow spread signals a big appetite from receivers to get a big volume delivered and do not encourage trading houses with long positions in the future market, to carry their sugar for five months.

Most of trading houses were suggesting that not even the traditional 10 points per month would be enough to pay the risks and costs of carrying sugar for March 2021.

"We will have a huge grains crop in Brazil next year. No one wants to take the risk of competing with soy and corn shipments in the Q1," said a trader from a major trading house a few weeks prior to the expiry.

From the receivers' perspective, the uncertainties about the Indian subsidies and sugar availability in the next months have supported the strength of the V/H spread.

As a reference, in the last four years, the narrowest average of V/H spread for the last 10 trading sessions was minus 54 points in 2016, when CS sugar production reached 35.6 million mt, or nearly to 2,000,000 mt less than Platts Analytics estimates for the current crop in 2020-21.

Trading houses who were involved in the expiry will have until Dec. 15 to ship the entire volume delivered. However, it does not appear to be a problem for deliverers, who have a large inventories in Brazil, and for receivers, who will have a carry market to trade it.

The official numbers from ICE NY11 will be available on Oct. 1.