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The market seems to be showing signs of a major break-out to the upside this morning as the rally has penetrated the 4-month downtrend channel off of the highs and this more positive technical action could attract significant new buying interest in sugar into next year. Demand is expected to improve from India and Pakistan over the near-term and Indonesia should be a more active buyer of white sugar. In addition, tightening supply out of China is seen as a positive force with China expected to experience a production deficit of near 2.0-2.5 million tonnes for the 2009/10 season. Traders see the excess rains in Brazil as a sign that the production cycle is running down for this season and there were rumors yesterday that Brazil mills are negotiating delivery contracts with several trading houses. The Sugar Cane Industry Association indicated that the center-south Brazil crush in the second half of November was just 25.4 million tonnes, down 16% from the same period last year. Cumulative sugar production for the entire season has reached 27.4 million tonnes, up 8.2% from last year while ethanol production has reached 21.5 billion liters, down 7% from last year. March sugar ended sharply higher on the session yesterday with a surge of 111 points to close at the highest level since November 18th. Ideas that the cash market will begin tightening up with the end of the key harvest season in Brazil helped to provide support and fund traders turned more active when the market pushed through 22.72, a new high for the week. Expectations that India will become a more active buyer just when Brazil supply begins to slow along with developing tightness in the China market helped to provide underlying support. The turn up in open interest in the past few days is also seen as a positive force.
TODAY’S GUIDANCE: Look for support today for March sugar at 23.28 with 24.57 as next upside target. Keep 28.18 as a longer-term upside target.
