Author: Michael Ferrari, PhD
VP, Applied Technology & Research
Will this be the week where world sugar breaks, or will the impressive rally in raw sugar continue? While most in the ags space spend nearly all of their time and energy in analyzing the grains sector, the big story, and one that will continue to unfold throughout 2010, has emerged from the sweetener space.
The run in spot raw sugar futures to 30 cents has been nothing short of spectacular from a %gain standpoint, but at this stage, the market is now at a crossroads. Producers rode the wave up to 30 cents with wider margins, but at these levels, sustained higher prices will curb demand, which we are already seeing in India, Pakistan and Egypt. Add to this the continued strength of the USD, and there may be more downside pressure in the short term. Weather Trends acknowledges that the market is still in a global deficit and the view for the Indian growing season is not favorable from a weather perspective, so there will be some resistance against a rapid downturn. However, in the short term, we do feel that a slight retracement to the mid 20 cent range (.25-.27) may be coming in the near future. We are advising to monitor for short term softening combined with strength in 3rd/4th futures as an attractive spread opportunity.