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The market remains in a consolidation and the dollar strength and sell-off in nearly all commodity markets helped prices ease back to near the middle of the September/October range. The market appears ready to move to a higher price level if the inflationary environment for commodities continues. The bear case is that supply will shoot higher for the 2010/2011 season and a slower world economy will spark more deflationary pressures on commodity markets. Moving outside of the 23.12-24.31 range may give us a better technical indication on the near-term direction of the market. March sugar closed sharply lower on the session yesterday as the market followed most other commodity markets lower on the day. A surge in the US dollar and a set-back in energy prices were seen as negative outside market forces. Continued concerns that the 2010/2011 world sugar crop will far exceed world consumption helped to pressure the market. Ideas that end users will do their best to delay purchases in hopes of lower prices ahead added to the selling pressure. Speculative long liquidation selling was thought to be active for much of the day but the market managed a decent bounce off of the lows into the close. From a production level of 16-18 million tonnes this year and just 15-16 million last year; traders see India production next year at 20-26 million tonnes. India has extended tax-free white sugar imports until December of 2010 in an effort bridge the supply gap into the next crop season. India’s Farm Minister indicated that the country will produce near 16 million tonnes for the current season from 15 million last year and from 26.4 million the prior season. The massive production deficit from India for the second year in a row is expected to force significant imports ahead. Iraq is tendering for 50,000 tonnes of white sugar.
TODAY’S GUIDANCE: The market looks vulnerable to some long liquidation selling over the near-term as commodity markets adjust to a more stable dollar. Look for support to hold near 23.12 for March sugar with resistance at 23.96 and 24.18.
TODAY’S MARKET IDEAS: Position traders might consider bull call spreads or buying futures against key support.
