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The weather in Brazil and actions in India to resolve tightness look to be the key factors in the short-term. After a week of scattered rains in Brazil sugar areas, the region looks to be drier for later this week. This could be seen as negative as long as it stays dry into the weekend and early next week. The supply side of the sugar market set-up still looks quite supportive to the bull market case for sugar but high prices and health concerns are still seen as a potential to help reduce demand. Switching to other sugar substitutes due to high prices, especially developing countries who may be more sensitive to price may begin to eat into demand. In addition, the American Heart Association has recommended to cut back dramatically on sugar consumption and while consumption of soft drinks began to slow in 2005 in the US, sales volume last year was said to have fallen near 3%. October sugar closed slightly lower yesterday with an inside trading day. News of wet weather in Brazil was not enough to spark buying to exceed Friday’s highs and some light long liquidation selling helped to pressure. A strong dollar helped to offset the news of Pakistan tendering to buy 300,000 tonnes. A European Bank production forecast of India sugar production down to 15 million tonnes or lower failed to provide much support. In the spring, the USDA pegged India production at 20 million tonnes and usage at 23 million but trade forecasts for production have been pushed down to the 16-17 million tonnes forecast in the last few weeks. India imposed rules to limit the amount of storage for large end users as a way to prevent stockpiling. End users can only hold stocks for up to 15 days of demand. India consumes about 2 million tonnes per month and newspapers in India report that stocks have dipped to just 4.5 million tonnes. The new crop crush season usually begins in October but the late monsoons may cause the crushing season to start late as well. Some believe that stocks are higher but if they are only 4.5 million tonnes, imports may be needed before the new crop season begins. In addition, if production is only 15 million tonnes, imports needs might be as high as 8 million tonnes for the coming season. A second year in a row of a significant world production deficit would be a factor to provide solid underlying support to the bull trend.
TODAY’S GUIDANCE: The market seems to have the fundamental set-up to see another leg higher without help from outside market forces. A close back over 22.27 and especially 22.53 for October sugar will be necessary to assume a resumption of the uptrend with 24.08 and 24.14 as next upside objectives.
