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The selling pressure for stocks and commodities seems to have been lifted somewhat overnight but this should not be construed as a sign of recovery in the world stock markets or a sign that the economy has been fixed. The sugar market has already priced-in a significant world production deficit for the 08/09 season and while the cash activity is picking up steam, the Brazil cane harvest will also pick up steam in the months just ahead. Brazil exported just 118,500 liters of ethanol in February which was down from 191,100 liters in January and down 67% from last year. This, plus the weak currency should provide the incentive for Brazil to become a more aggressive producer and exporter of sugar and could help shift the focus on the new crop to sugar production; not ethanol. The ethanol industry in Brazil which was just accelerating in 2008 and many newer operations have little cash in order to store ethanol so there is a fear that aggressive selling from this group could drive ethanol prices in Brazil down sharply in the months just ahead. Even the government is trying to offer subsidized financing for this group in order to avoid selling ethanol onto the cash market (storage financing) but this idea may be coming too late and offer too little in the way of slowing the need for newer operations for cash. The backlash of these actions combined with the strong US dollar should give crushing mills in general the incentive to shift a greater portion of the cane harvest to sugar. May sugar pushed lower again yesterday despite news that cash sugar sales are picking up. The move from lower to higher on the session for the dollar index and from higher to lower for the stock market along with a lack of a recovery bounce in energy markets helped spark the renewed selling interest in sugar; thought to be long liquidation selling. Outside market looks positive to start the day but this could be just a “bounce in a bear market trend” for equities and for commodity markets. Cash traders indicated that mills from India bought 100,000 tonnes of raw sugar and there is also talk that other mills are negotiating for 50,000 tonnes more from Brazil. Brazil sold 50,000 tonnes of sugar to South Korea as well which is the first since 2002 due to cheap ocean freight which has expanded the market for Brazil. This is likely to have as negative price impact for Thailand exporters. Thailand sold 44,333 tonnes to an international trade house.
TODAY’S GUIDANCE: Look for selling to emerge on recovery bounces off of the lows and look for a continued short-term downtrend with 12.38 and 12.01 as next support levels. Short-term selling resistance comes in at the 13.09-13.26 zone for May sugar.
