Author: Michael Ferrari, PhD
VP, Applied Technology & Research

An active monsoon pattern in northern India finally kicked off last week, and the short range pattern looks like it will continue to provide moisture to sugarcane regions in the northeastern states.  While the last few weeks have seen steady strength in raw sugar futures, the rains could keep trading in the current range for the next 1-2 weeks.  The Weather Trends image below is the satellite from 15 Jul, 10:15 UTC.  Despite the current outlook, for the northeast, when we look at the country as a whole, there are still rainfall deficiencies (which we have addressed in previous posts) in the central and northern regions, and this should be a cause for concern among cane growers.  The Indian Met Department has been highlighting these potential deficiencies in recent discussions as well.

While rains in the north are positive news for cane growers, there is a possible offset to the favorable short range weather outlook: India’s domestic stockpiles for the sweetener are still very low, so physical supply may be held back from the market, thereby keeping sustained upside pressure on raw prices, which we have seen this week; raw sugar futures for Oct-10 have inched up from around 16.6 at the start of the week to 17.2 in trading yesterday.  In addition, most talk in the market among traders has been overtly bullish in the short term.  Strong demand, particularly from Asia, coupled with lower than previously expected stocks going into the new crop year (Oct 2010) should support activity in a range between 16 and 18 cents over the next couple of months.