Sugar looks to remain volatile over the near-term as market fundamentals clash. India may shift from a world exporter to a world importer this year and world production may come in below world consumption. These positive fundamentals clash with the overbought condition of the market and concerns that demand from key world importers will be declining in the months just ahead. Recessionary demand for sugar is one issue and weak energy prices could also direct more of Brazil’s 2009 cane crop to sugar production as compared with ethanol. March sugar closed 22 lower on the session yesterday but up 28 points from the lows. A sharp break in the stock market and further weakness in the energy markets had traders concerned with the demand outlook for both sugar and ethanol out of Brazil. Demand from Russia is especially in question and there was also talk that Brazil production looks to climb sharply again for the 09/10 season. Ideas that the market was technically overbought after the recent bounce added to the short-term selling pressure. There is talk that India may soon allow the import of raw sugar and not force an export obligation of the same amount and the country is also considering cutting import taxes. One of India’s state-run firms issued a tender to import near 22,000 tonnes of raw sugar and traders believe that this is just a start and that India could import near 1 million tonnes. The Farm Minister this week indicated that sugar production could drop to 18 million tonnes as compared with 26.3 million last year as producers shifted to other crops and oilseeds.
TODAY’S GUIDANCE: Money is currently flowing to the US with traders sensing more and more financial difficulties in Europe. The surge in the dollar adds to the negative demand tone for sugar and India is unlikely to be an aggressive enough buyer to offset recessionary demand for sugar and ethanol.On the other hand, inflationary concerns are on the rise and all commodity markets may find support if gold keeps advancing.