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With a high open interest and significant resistance near the 13.60 level for May sugar, it will be important for the market to hold minor support on technical corrections or long liquidation selling could set in to spark a more significant set-back in prices. India has formally allowed duty-free imports of raw sugar after sugar production for the 2008/2009 season is expected to reach just 18 million tonnes from 26.3 million last year. Traders believe India has already bought near 200,000 tonnes from Brazil with some estimates as high as 700,000 tonnes. Traders believe that India will import near 1.5-2.0 million tonnes this season. May sugar closed sharply lower on the session yesterday and managed to move to the lowest level since February 5th as speculative selling turned active across a wide spectrum of commodity markets. The COT report on the weekend showed a very overbought technical condition and another sharp break and new lows for the energy market helped pressure. Speculators increased their net long position by more than 25,000 contracts in just one week ending February 10th to reach a net long position of 148,704 contracts. Weakness in other commodity markets and fears that Brazil ethanol exports will remain slow and a lack of new import news from India were seen as other negative forces. Selling was also seen overnight and May sugar pushed below yesterday’s lows as a firm tone to the dollar and weakness in London sugar helped pressure. Australia sugar production could drop as much as 20% after weeks of heavy rains have hit the key producing areas. Yields are expected to be negatively impacted by the flooding weather at a time when the crop needs sun. Australia produced 4.6 million tonnes last year.
TODAY’S GUIDANCE: The market may be in the process of correcting the overbought technical condition.
