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The technical action in sugar remains positive and the focus of attention is still on the potential for a small crop in India which will add to the projected world production deficit. March sugar has pulled above the 10.50-12.50 3 1/2 month consolidation and is in the process of testing the key resistance at 13.14. This represents a 50% correction of the August to October break. A slight rise in open interest on the break-out is positive but technical indicators show a short-term overbought condition. The market demand factors are in a transition but short-term demand still looks mostly negative. However, the tighter than expected supply from India could spark increased imports and might also spur other buyers to act now, not later. One of India’s state-run firms issued a tender to import near 22,000 tonnes of raw sugar last week and traders believe that India could import near 1 million tonnes. The Farm Minister last 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. March sugar pushed sharply higher on the session yesterday and has closed higher in 6 of the past 7 trading sessions. March sugar moved above 13 cents for the first time since early October and open interest has also moved to the highest level since October. A sharp break in the US dollar, strength in the gold market and growing inflationary concerns have also helped support the uptrend. Traders see potential imports from India as a bullish factor.
TODAY’S GUIDANCE: We still have short-term demand concerns for the market but traders are looking past the short-term and assuming that the massive monetary stimulus of the past six months combined with the outlook for another massive economic stimulus package in February could be enough to help the economy bottom and prompt some inflationary concerns.
