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Without negative outside market forces, the sugar market appears poised for at least a recovery bounce after the sharp sell-off from the February 26th peak. The India government seems set to approve of the duty free import of up to 2 million tonnes of white sugar in the next six months in order to shore up tightness in the domestic market. This may help provide underlying support. India exported a record 4.9 million tonnes of sugar last year but tightness has developed ahead of the start of the new crop season in October. India production is thought to be down near 16.5 million tonnes from 26.5 million last year. The market managed a strong rally on the session yesterday led by trend-following fund buyers who seemed active in New York soft markets and metals. Talk that India could be a buyer of more refined and raw sugar over the near-term helped to support the early bounce and a weaker US dollar was also seen as supportive and fund buyers were active through-out the session despite a sharp set-back in energy markets and a break in the stock market. Talk of the oversold technical condition added to the positive tone and helped May sugar push to a 3-day high before a minor setback into the close. The market appears extremely oversold basis technical indicators but the recent COT report would suggest that speculators still hold a hefty net long position so the turn higher in the stock market may not necessary spark increased short-covering. The potential lack of export demand for Brazil ethanol sets the stage for a shift to more sugar production this year from Brazil and traders see the center-south region as a potential 15-20% increase in sugar production from last year due to the expanding cane crop from the world’s largest producer. As a result, it will take a meaningful rally in the energy markets to see much follow-through on a short-term rally in New York.
TODAY’S GUIDANCE: Given the tightening supply situation in India, it may take a shift back to more negative outside market fundamentals to see a continuation of the recent downtrend. Don’t rule out a bounce to 13.18 or even 13.35 before the market settles. Close-in support is at 12.71 for May sugar.
