Sugar Options Commentary 8th February 2010
Published: 02/08/2010, 8:37:00 PM
J&C Commodities
Sugar Options Commentary
8 February, 2010
- J&H buy 500 H 2600p @ 75-80
- MCQ buy 1000 N 2100p/sell 1000 N 2900c @ 27 vs N=2340 (crossed 500)
- JPM buy 500 K 3300c @ 72
- M&G buy 2500 K 30/35 call spreads @ 62-64
- JSG bot/sd 1000 K 3000c @ 111 vs K= 2600
- MCQ bot 1000 K 4100c @ 18 vs K=2600
- Coffee Broker sd 600 K 4100c @ 18-19
Commentary
The talk of Pakistan in the market for 100,000 MT (supposedly @ $807/mt) shows that there is still quite a short term demand for Sugar. Although there was ample debate as to whether they actually completed the transaction, the excuse was enough for us to see a rebound from the severe pounding sugar and other commodities took over the last week. The talk from Kingsman this morning from Dubai showed there will still be a considerable deficit going into this crop year and a surplus going into 2011 that will barely cover the projected demand in the pipeline. Therefore, no great reason to get bearish just yet. Most likely, what we witnessed last week in sugar was a small skirmish of a Greater War. The war in question is the unwind of the US$ carry trade in the face of debt problems in the PIGS (Portugal, Ireland, Greece, and Spain) and the fact that the US$ is still the world reserve currency. Of course, since the China Yuan is not freely convertible in Forex Trading, it is not as if many other alternatives exist if one wanted to diversify from Euros.
In the options, volatility came in about 1% but there was decent buying interest as vols were offered. Paper offered size in N put butterflies and locals were very happy to buy these. At the same time, other paper came in to buy up the K 30/35 call spreads as well as K 3300 calls so locals and some paper were keen to sell the wings.
To us, we feel the pullback we saw last week has nothing to do with "demand destruction." Instead, it was a self fulfilling prophecy that saw unease spread from a totally unrelated market (Credit Default Swaps) into all commodities via a flight to quality in the US$. The net effect was an unloading of managed money positions across all commodities and a bit of an oversell in Sugar. The Mexico announcement of import quota today for 250 KMT until 20 May combined with the continuing Pakistan saga just seems to underly that we are still in a deficit situation.
In more mundane news....New Orleans winning the Super Bowl is America's version of the 1973 FA Cup Final when Sunderland knocked off Leeds United. Ian Porterfield has morphed into Drew Brees.