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The gap lower in London white sugar futures today from all-time highs posted yesterday could spark long liquidation selling in New York. The market has seen a sharp rally in the past week led by talk of lower yields in Brazil and a lack of rains for the cane areas of India. Conditions seem to have at least stabilized in India with some areas receiving rain this week and Brazil weather has improved for the second week in a row. There is talk that India has bought 150,000 tonnes of sugar from South America for prompt shipment and traders believe that India will need to import at least 5 million tonnes for the coming year. The extreme overbought condition of the market means that bullish news will need to be seen almost daily in order to attract new buyers. October sugar pushed sharply lower on the session yesterday as outside market forces were supportive but New York October sugar could not get through Wednesday’s highs. This sparked long liquidation selling to drive the market lower. Technical indicators are in an extreme overbought condition, especially after a 397 point run in just five trading session. The India situation has helped support the active spec buying but good weather in Brazil could be attracting some commercial selling and the USDA supply/demand report this week showed a 6.7% stocks/usage ratio for the 2009/2010 season as compared with just 3.4% the previous month. There is already talk of increased planting in Indonesia for the 2010 crop. For now, corrective breaks are likely to attract increased buying from commercial traders who are not covered for future needs but with October futures trading nearly 300 points above the 21-day moving average, the buying may not emerged right away. Nearby futures have moved up as much as 26.5% from the July 31st low and 49.4% off of the June 17th lows to new 28-year highs.
TODAY’S GUIDANCE: The market has started a near-term correction from historically overbought levels. The next upside target is 24.07 with key support at 20.82 and 20.04 basis the October futures.
