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The market continues to struggle with the clash of a positive fundamental outlook for sugar against the deflationary price pressures of the global economy. Public institutions around the world continue to pump money and liquidity into the system but this has failed to slow the contraction in the money supply as consumers back away from spending. Perhaps the slowdown in the velocity of money is the issue. In fact, China is again attempting to support prices of various commodities through the purchase of state reserves. China plans to buy white sugar (thought to be near 1.1 million tonnes) to support prices which have slipped below the cost of production. March sugar tried to trade higher early in the session yesterday but deflationary outside market forces helped spark selling in many commodity markets and sugar was no exception. A sharp break in the energy markets helped push the March sugar lower as traders feared additional redemptions of index fund investors. The jump in the US dollar and renewed demand fears from emerging markets helped spark some of the selling pressures as well. Brazil exported 1.413 million tonnes of raw sugar in November which was down from 1.524 million tonnes on October but up from 1.132 million tonnes last year. Ethanol exports, however, reached 506 million liters up from 481 million in October and up sharply from 228 million liters last year. The jump in ethanol exports is a positive longer-term fundamental development which may encourage a continued high percentage of cane to be processed for fuel and not sugar. The Commitments-of-Traders reports released late yesterday showed that index funds continued to exit the market selling 6,835 contracts for the month to reduce their net long position to 233,945 contracts. This was offset by trend-following funds who increased their net long position by 6,990 contracts to 25,255. Small traders shifted from a net short position to a net long position as non-reportable traders were buyers of 6,999 contracts. Given the lack of a trend since October, the speculative buying leaves the market somewhat overbought. Open interest was down 2,640 contracts.
TODAYS GUIDANCE: The double bearish impact of deflationary pressures on prices and recessionary impact on demand leaves the market vulnerable to more selling pressure into the new year and speculative long liquidation selling could increase on technical weakness.
