At the start of the new year, sugar futures are again testing the 35-cent barrier with weather-related supply concerns among the primary drivers for the March 2011 contract. Crop limitations from Brazil and India are priced into the spot through second futures contracts, however, Weather Trends analysis anticipates additional market strength resulting from the rainy pattern in Queensland, which may start to add to market support to raw sugar futures in January.  When the world is in a healthy S-D balance situation, this may not have a sustained market effect, but with global production estimates from many primary origins (AUS included) falling, the upside price reaction my be more rapid and more sustained.  See previous post for Australia December 2010 precip map.

Global demand for the sweetener is still strong, and with talk of physical imports for many high demand countries (not to mention high production countries) across Asia, it is likely that price risk to the upside will remain into the early part of 2Q11.  From a longer term weather perspective, we are now keeping a close eye on the behavior of the current La Nina which has been showing signs of fading in recent months –this will be very important to the world’s cane growers as the potential for El Nino to re-emerge in late 2010 could have significant production impacts.   Many external long range models are starting to support this La Nina/El Nino transition in 2011.