The front-month, July, ICE NY11 sugar future contract expired on June 30, with 253,600 mt of raw sugar physically delivered, the lowest volume for a July contract since 2014.
According to market sources, of the two deliverers involved, one would be a trading house and the other a big local producer that is part of the same Holding group controlling a sugar terminal at Santos Port. In the receiving side, three trading houses shared the small volume delivered, in which just one took 47%, or 119,900 tons of the volume.
With a bumper crop in Center-South Brazil, where S&P Global Platts analytics estimates sugar production is at 36.3 million tons, up nearly 10 million tons on year, it was no surprise to see all volumes delivered at the port of Santos, the main export hub for Brazilian sugar.
Market participants attributed the thin volume delivered to a basket of facts: The premium paid in the inter-trade market for the July shipment period, the high volume delivered in the May (K) expiry, and the large queue at the port of Santos, which could trigger high penalties for deliverers in the case of a prompt nomination.
According to Platts sugar assessment FOB Santos, in the last 30 days, the average premium for the July shipment period was at a 14-point premium to the July (N) future contract, supporting the idea that sellers were finding buyers willing to pay better than the tape in the spot market.
At the expiry of the May (K) sugar future contract, 2.26 million mt were delivered at Santos port, the record-high volume delivered for this contract. This large volume was also considered supportive for lowering the July delivery pressure.
While those two aspects could explain part of the expiry situation, delays for sugar vessels at Santos port is also a consideration. The queue at the port points to an average of 30 days to berth at a specific sugar terminal.
The line-up of vessels waiting to load sugar, released by Unimar Shipping Agency on June 30, showed 2.79 million mt of raw sugar to be shipped out of Santos port in 56 vessels.
Considering the ICE NY11 contract rules, the receiver can nominate vessels from July 1to September 15, and with the cash values structure proving an inverted market, trading houses have potentially left the short position in the July contract to avoid high demurrage costs in July.
In the day after the ICE July NY11 expiry, a bid for July shipment was reported at a 5-point premium to the October in the intertrade market, while the most competitive offer was at an 8-point premium. Considering the average of the July/October spread at minus 9 points in the week prior to the expiry, a bid at V+5 would be equivalent to N+14, or the same premium as the average Platts assessment for July shipment in the last 30 days.
