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Unless there is a turn back up in the stock market or some sign of a bottom in energy prices, the path of least resistance looks down for sugar. Traders have been awaiting increased tender business from India, but this has not occurred yet. In the meantime, the sharp break in energy prices has traders concerned that there may be a shift toward more sugar production and less ethanol production in Brazil. This, along with a potential decline in sugar consumption around the world could help reduce the projected world production deficit for the 2008/09 season. Declining world demand along with the potential for a recovery bounce in India production for the 2009/10 season could quickly shift the current small world production deficit forecast to a surplus. May sugar closed 7 lower on the session yesterday and down 25 points from the highs of the day. A turn down in the stock market and a turn higher in the US dollar helped pressure the market after the early, solid gains. The Indian government is limiting the amount of sugar that private companies can hold in an effort to depress local prices. Weakness in the energy markets after an early bounce and continued concerns that world demand is on a decline were seen as short term negative forces. In addition, the Commitment of Traders report (as of February 17th) showed speculators net long 146,104 contracts, which leaves the market vulnerable to long liquidation selling, especially if last week’s lows are violated. The market closed at 13.57 for May sugar on February 17th, so many of the new buyers are already holding a losing position.
TODAY’S GUIDANCE: While the longer term supply/demand fundamentals look positive, the deepening recession, a higher US dollar and weakening energy prices could shift demand news down and leave futures extremely overbought if outside forces remain weak.
