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The sugar market has been in a steady and persistent bull trend since the washout low into October. The uptrend channel has been impressive given the outlook for a large Brazil cane crop this year and crude oil’s choppy trade in the $40.00-$55.00 range since late last year. A recovery in the world economy and the possibility that ethanol export demand from Brazil will see a gradual uptrend in the years just ahead leave sugar as a longer-term “buy and hold” commodity. The possibility of a sharply lower dollar and the likelihood that there will be inflationary pressures on commodity markets due to aggressive monetary stimulus in 2008 are additional reasons to consider buying sugar. Traders see a significant world production deficit this year and another one for next year.
It appears that India needs to import quite actively, and the market already knows that Brazil should see a large cane crop this season. India has already contracted 1.3 million tonnes of raw sugar this season, of which 900,000 have already arrived. The head of the India Sugar Mills Association indicated last week that they would import close to 3 million tonnes of raw sugar this season and that more imports would be necessary for the 2009/10 season. India production is expected near 14.8 million tonnes, which is slightly higher than previous estimates of 14.5 million but down sharply from 26.5 million last year. Market sentiment has turned bullish, with the demand outlook boosted after the Indian government removed import duties. The India government does not believe sugar production will fall below 15 million tonnes, while industry representatives believe production will be near 14.2 million. The USDA attach‚ believes India will need to import more sugar (2.5 million) in the 2009/10 season, and traders see imports near 3 million tonnes this season.
Fundamental factors that could limit the upside include a slowdown in demand from Indonesia and Russia this year and prospects for a large cane harvest in Brazil’s center-south region. Traders see a Brazilian cane crop that could be up 8-10% from last year if the weather is favorable. With deliveries against the May contract out of the way, the market may be in a position to see a resumption of the uptrend. The Commitment of Traders report for the week ending April 21st showed a mostly overbought condition in sugar with speculators holding a hefty net long position of 140,661 contracts. Trend following funds reduced their net long position by 2,212 contracts to 62,735 contracts. The selling trend is slightly negative. On the other hand, index funds increased their net long by 1,272 contracts for the week. Open interest for the month of May was down about 45,000 contracts. The uptrend could begin to attract new buyers ahead, while sellers seem to be already positioned.