Friday December 5, 2014

World sugar futures turned in a dull session – essentially a replay of the past two days. The past three sessions have seen the March futures confined to a 15.02 to 15.26 range and March twisted across this range today, failing at 15.25 early in the session and retreating to the core of the past two day’s range. Prices settled seven lower in March at 15.14 and from 11 to nine lower in the back months. Traded volume was 54,914 lots On spread, March/May traded from 40 to

35 under and last at 37 under. Half of the spread’s volume on the day traded in the 30 minutes

leading up to the close, pushing the spread into 35 under. May/July traded from 27 to 21 under and last traded at 23 under. Technically, March left three highs between 15.24 and 15.26 in the past thee sessions. The long term low at 15.02 looks vulnerable.

Option watch: Option volume was modest at best with 5,820 contracts trading. Vol’s were unchanged for most of the day. January vol is 19.83, up .41 %; February vol is 20.19, unchanged; March vol is 20.77, unchanged; May vol is 18.76, up .21 %; and July vol is 17.71, unchanged. Trades of note: 983 January/May 18.50 Put Spreads trade 31, 500 March 16.75

Calls trade 12-13, 300 March 16.50/17.00 Call Spreads trade 6, 300 March 14.00 Puts vs 15.15 trade 14, 250 March 15.25 Calls vs 15.12 trade 50, 200 March/May 14.00 Put Spreads trade flat and 400 May 18.00 Calls trade 13-14.

Kingsman reduced its deficit estimate for the 2015-16 year to 600,000 tonnes from 1.66 million tonnes previously estimated, and noted that improved prospects for India could push the market into a small surplus. According to UNICA, sugar mills in Brazil’s center-south should crush

541.4 million to 561.6 million tonnes of cane in the 2015/16 crop, Estadão reports. The estimated

amount is the same or 3.6 % lower compared to 2014/15 crop. Unica projects sugar production between 29 million to 30.3 million mt in the 2015/16 harvest, down from the 31.7 million mt the association estimates for this year. In India, as many as 81 sugar mills out of 119 in Uttar Pradesh have got into cane crushing operations, Financial Express reports. After two weeks into the new crushing, the mills have produced 139,100 tonnes of sugar compared to only 30 mills at the same period last year producing 21,100 tonnes of sugar. The recovery of sugar has shown an increase this year with an average of 8.64 % against 7.48 % in the same period last year. Usually, an average of 50 % of the total sugarcane produced by the state is drawn by sugar mills while 30

% goes towards making gur, 5% towards khandsari and the remaining 15% towards seeds and as

fodder.

Today’s CFTC Commitment of Traders Supplemental Report showed a net spec short position of 97,247 lots as of Tuesday’s close. The large specs liquidated 7,641 longs and added

29,071 shorts to be net short 88,410 lots and the small specs liquidated 2,687 longs and added

188 shorts to be net short 8,837 lots. The report also showed the index funds to be net long

275,478 lots after adding 3,869 longs and covering 119 shorts. The futures-only report showed a net spec short of 2,039 lots – with the small specs net short 8,742 lots – and the combined futures and options report showed a net spec short 16,787 lots.

The takeaway from the report, on the supplemental side, is not surprising considering March traded from a 16.13 high down to 15.21 which led us to believe the specs had re-established a more aggressive short position following a quick reprieve last week. Given that the spec short number is not close to the max seen this year, we believe even at these lower levels the market could produce additional selling which would move the current trading range lower coming into next year. We would not be surprised to see an additional cent of pressure before the year is out.

In the NAFTA region: US futures eased today as traders hammered positions into shape ahead of Monday’s January expiry. Prices settled five higher at 23.98 and from 10 to 22 lower in the other active months. January eased from 23.98 to 23.30 during the session, with the bulk of the day’s activity transacted between 23.75 and 23.50. January OI stood at 1,750 lots prior to today’s activity. Today’s low in January represents a return to values last seen in the last week of March – when the AD/CVD investigations were first announced. The collapse of the Mexican peso against the dollar has gone parabolic, as the chart at left shows. The peso, which

settled at 13.5751 one month ago, dropped to 14.4569 at the extreme today. Regards,

Jenkins Sugar Group, Inc.

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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.