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The dry forecast for Brazil sugarcane areas, weakness in energy and other commodity markets overnight and a strong bounce in the US dollar are all factors which could slow the recovery bounce in sugar over the near-term. Ideas that imports from Pakistan, Mexico, the US and Russia could be enough to spark another jump in cash prices over the near-term has helped to support the recent bounce. Monsoon rains in June in India, Pakistan and Southeast Asia will be critical this year as the market has seen a drawdown of nearly 20 million tonnes of sugar in the past two years and a surplus will be needed to replenish stocks. July sugar pushed sharply higher on the session yesterday closing higher for the 4th session in a row and moving to the highest level since March 31st. Talk of improving demand over the near-term along with tight near-term supply of available sugar for export were supportive. A surge higher in the May London white futures contract during the past week and sharply higher trade in energy markets and the stock market helped to support the sugar market as well. China production in March was just 2.02 million tonnes, down 24% from last year and this pushed first quarter production to 7.39 million tonnes, down 15% from last year’s pace. China is working on a second year in a row of a significant production deficit and the slow pace of production may be a concern. Traders will be monitoring the pace of selling and production from Brazil and there was talk of Brazil producer selling in futures yesterday. The weather looks near ideal for a fast start to Brazil production for April. Open interest was down 3,872 contracts which was not a good sign given the recent strong move higher.
TODAY’S GUIDANCE: The market has corrected the oversold condition and outside market forces could weigh on futures to start the session. The break from the highs was so severe that even a move to 19.10 will not turn the trend back up. Tightness in the pipeline is likely to be a supportive force for another month or so.
TODAY’S MARKET IDEAS: The market looks to see a short-term set-back but the recovery bounce off of the lows may not be over. Watch for some short-term selling pressures but cash buyers are likely to support the market on breaks. July sugar support comes in near 16.94 and 16.65 with 18.67 and 19.10 as next upside targets. The June 19.00 calls look rich near 45 points.
