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The 3-day surge in prices may have helped turn the minor trend in sugar from down to up, but it will take a significant weather issue in Brazil or another key producer to renew tightness concerns. For now, the market is absorbing better than expected supply from Thailand and the outlook for some exports out of India. May sugar closed 71 points higher on the session yesterday, close to the day’s highs. Ideas that higher gasoline prices might divert more cane to ethanol helped to provide underlying support. Ideas that China may be a more important importer this year and talk that the long liquidation trend from fund traders seen for much of February has slowed, added to the positive tone. A weaker US dollar and news that index funds are adding to long positions lent support. The International Sugar Organization revised their 2010/11 world production surplus to just 196,000 tonnes, down from 1.29 million tonnes that that had forecast in November. This is due to lower production from Australia and other key producers. The two previous years saw large production deficits, so the beginning stocks/usage ratio for the 2011/12 season is expected to remain near 25-year lows. Brazil’s southern state of Parana is expected to start its crushing season any day now, and output is expected to be up about 7% from last year, according to the state milling association. China sold 150,781 tonnes of sugar from state reserves, which was all that was offered. The government has now sold 771,705 tonnes of sugar into the domestic market since the season began on October 1st. In a sign of the times, Thailand is expected to set aside 2.8 million tonnes of sugar production for domestic consumption, which would be a record high. This is considered a preventative measure to avoid any tightness of supply and to reduce inflationary pressures. Slower demand recently has had Thailand sugar premiums trade at a 13-month low, but they were excessive for much of the past year due to the tight supply. Late last year, Thailand officials believed the sugar production would be just under 7 million tonnes for the 2010/11 season, but it is now projected at 7.8 million tonnes. Index funds have been more active buyers in the past few weeks. Keep in mind, they are currently long 166,319 contracts but that they held a net long of 392,740 contracts in May 2008.
TODAY’S GUIDANCE: The 3-day spurt leaves the market slightly overbought, but with positive outside market forces and higher gasoline prices ahead, the market may be well supported by new speculative buying. May sugar fell as much as 18.7% from the February highs, which might be enough to correct the overbought condition. Index funds have shifted to a buying trend, and a turn higher in open interest might be seen as supportive.
TODAY’S MARKET IDEAS: May sugar close-in support comes in at 28.55, with 30.00 and 30.74 as resistance.
Sugar: Slightly Overbought but Outside Markets May Spark Spec Buying
by Terry Roggensack on March 1, 2011
Below is a sample of The Hightower Report’s Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!
The 3-day surge in prices may have helped turn the minor trend in sugar from down to up, but it will take a significant weather issue in Brazil or another key producer to renew tightness concerns. For now, the market is absorbing better than expected supply from Thailand and the outlook for some exports out of India. May sugar closed 71 points higher on the session yesterday, close to the day’s highs. Ideas that higher gasoline prices might divert more cane to ethanol helped to provide underlying support. Ideas that China may be a more important importer this year and talk that the long liquidation trend from fund traders seen for much of February has slowed, added to the positive tone. A weaker US dollar and news that index funds are adding to long positions lent support. The International Sugar Organization revised their 2010/11 world production surplus to just 196,000 tonnes, down from 1.29 million tonnes that that had forecast in November. This is due to lower production from Australia and other key producers. The two previous years saw large production deficits, so the beginning stocks/usage ratio for the 2011/12 season is expected to remain near 25-year lows. Brazil’s southern state of Parana is expected to start its crushing season any day now, and output is expected to be up about 7% from last year, according to the state milling association. China sold 150,781 tonnes of sugar from state reserves, which was all that was offered. The government has now sold 771,705 tonnes of sugar into the domestic market since the season began on October 1st. In a sign of the times, Thailand is expected to set aside 2.8 million tonnes of sugar production for domestic consumption, which would be a record high. This is considered a preventative measure to avoid any tightness of supply and to reduce inflationary pressures. Slower demand recently has had Thailand sugar premiums trade at a 13-month low, but they were excessive for much of the past year due to the tight supply. Late last year, Thailand officials believed the sugar production would be just under 7 million tonnes for the 2010/11 season, but it is now projected at 7.8 million tonnes. Index funds have been more active buyers in the past few weeks. Keep in mind, they are currently long 166,319 contracts but that they held a net long of 392,740 contracts in May 2008.
TODAY’S GUIDANCE: The 3-day spurt leaves the market slightly overbought, but with positive outside market forces and higher gasoline prices ahead, the market may be well supported by new speculative buying. May sugar fell as much as 18.7% from the February highs, which might be enough to correct the overbought condition. Index funds have shifted to a buying trend, and a turn higher in open interest might be seen as supportive.
TODAY’S MARKET IDEAS: May sugar close-in support comes in at 28.55, with 30.00 and 30.74 as resistance.
Tags: Softs, Sugar
About Terry Roggensack