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The fact that there was an upside breakout yesterday may attract increased technical buying over the near term, as fears of further damage to the Australian cane crop and a lack of reasons to expect much change in the tight world supply for the coming year lend support. A firm US dollar trend and concerns with increased violence in Egypt helped to pressure the market overnight into giving back part of yesterday’s strong gains. March sugar closed 135 higher on the session yesterday, up 3.97% to a new 30-year high. Fears of damage to the young cane crop in Australia due to a massive cyclone hitting Queensland helped to spark increased buying and strong gains in the US and London futures. A firm tone in the US dollar was offset by higher trade in energy as well as other agricultural markets. The world stocks/usage ratio is already extremely tight, and the damage to Australia’s cane crop could tighten the outlook further. In addition, the recent tendency for nations to want to increase their stored supplies of food commodities like sugar, rice, vegetable oils and wheat has added to the positive tone. March sugar prices are up as much as 20.1% over the past 10 trading sessions. Traders see about one third of the cane crop in Queensland as vulnerable to the cyclone. That state accounts for about 90% of Australia’s cane production. With the poor weather already seen prior to the cyclone, exports from Australia for the 2010/11 season had been expected to fall to around 2.4 million tonnes from previous estimates of 3.2 million. India’s production is not coming in as well as anticipated in some of its growing areas, offering further evidence that the government there may not allow unrestricted exports anytime soon.
TODAY’S GUIDANCE: The uptrend looks to continue over the near term, as Brazil is in the off season and the new crop is still months away and end users are likely to be a bit more active. This should allow for better commercial buying interest on setbacks.
TODAY’S MARKET IDEAS: Buying support for March sugar comes in at the 34.77-34.52 zone with 36.78 as the next upside objective.
Sugar: Vulnerable to Selling; More Likely Commercial Buying on Break
by Terry Roggensack on February 17, 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 market appears to be in the process of forming a near term low, but the trade sees higher production from Brazil for the coming season as an obstacle to higher prices. Unlike buyers in other food commodities, sugar buyers have been quiet over the past few weeks, apparently waiting for better prices to extend their coverage. Beginning stocks for the 2011/12 season are historically tight, but many traders see a world production surplus for the coming season. Many countries have expanded production following the high prices last year. March sugar closed sharply higher yesterday, reversing a recent trend toward higher trade early and long liquidation selling late. The market was higher early in the day yesterday, and it found additional buying support when energy markets turned up and the US dollar turned down. Ideas of higher interest rates ahead supported commodity markets in London, and New York sugar followed London higher. Mexico appears to have recovered from two years of poor crops. Their production through February 12th totaled 523,678 tonnes, up 29% from last year’s pace. They expect to reach 5.3 million tonnes for the season. Indian officials will consider allowing 500,000 tonnes of white sugar exports today, and given the slight reduction in inflationary pressure in recent weeks, some increase in exports of sugar appears possible. But keep in mind that India has also been very reluctant to export wheat or rice, even with hefty stocks. China is expected to see a significant production deficit this year of at least 2 million tonnes. Refined sugar production for 2010 was just 11.05 million tonnes, down 15.9% from the previous year.
TODAY’S GUIDANCE: The market remains somewhat vulnerable to long liquidation selling, but after recent sharp sell off from the highs, any further declines may require some bearish outside market influences. It is more likely that commercial buyers will emerge on this break to support a short term recovery.
TODAY’S MARKET IDEAS: Short term support for March sugar comes in at 31.11, with 32.29 and 33.01 as resistance. October sugar may be forging a near term low. Close in support is at 24.61, with 25.91 and 26.30 as resistance.