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The combination of inflationary undertones to the economy and the potential buying from India are bullish short term factors for the market to have to absorb. There is some concern that India may not be willing to pay up at recent higher prices, so there is somewhat of a wait-and-see tone to the market, but news that the Fed would pump in another $1.1 trillion dollar into the system helped spark an aggressive buying trend from fund traders across a wide spectrum of commodity markets, and the Fed actions also sparked the biggest one-day loss in the dollar index since at least 1985, which added to the positive tone for the sugar market. May sugar closed 38 higher on the session and managed to hold onto the early gains for the entire session to close near the middle of the range. In addition to the sharp drop in the US dollar, a surge higher in energy markets and active speculative buying also supported the strong gains. The energy market rally was especially supportive to the sugar market and will help ease fears that Brazil millers will shift more of the upcoming cane harvest from ethanol to sugar production. On top of the inflationary tilt today, traders see the developing tightness in the cash market as a positive factor. May sugar in London moved to its highest level since September 29th. Open interest jumped to 646,534 contracts from 606,311 on March 9th, and this is seen as a positive development. Traders believe India will import at least 2 million tonnes ahead of their harvest in September and maybe more in the 4th quarter if conditions are tight. In addition, Pakistan is expected to need nearly 700,000 tonnes, and there is some concern that the US may need to increase imports this year as well.
TODAY’S GUIDANCE: It may be hard to fight the inflationary trend over the near term, as many commodity prices are seen as too low for a possible growing world economy ahead. Sugar, however, is overbought technically and will need to see evidence of India buying to exhibit significant follow-through to the upside on the recent uptrend.
TODAY’S MARKET IDEAS: Support for May sugar comes in at 13.35 and 13.17 with 14.50 as next upside target.
