Spot raw sugar futures are currently trading above 21 cents/#; these are the highest trading levels for the sweetener since March.  The weather  conditions in northern India are starting to improve, although the seasonal rainfall totals in Uttar Pradesh are still well behind what is  needed, and we feel that this is not fully priced in, and we also feel that most analyst’s expectations are not reflecting the potential downside to the 2010/11 crop.  More support in the market is now coming through weather in Brazil, which is the world’s largest sugarcane producer.  We have noted the dry conditions in Brazil’s Centre-South in a previous note.  The verification chart in last week’s post highlights the y/y change in rainfall designated by the bars, with the observed changes shown by the solid line; the long range WTI outlook did capture this dry pattern, and clients should have hedged positions with the use of this information.

 

 

At this the mid 22 cent range, where sugar goes from here is a different question.  We called for a run up to the low 20 cent range, which has now materialized.  The market perception for a stronger Indian crop over the coming crop year may support a decrease in net long positions, but we still see the potential for supply-driven spikes, which can set the stage for short term moves into the mid 20s.