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Realization that India demand will remain slow and that extra sugar from India backing out of import deals (estimated at near 100,000 tonnes so far) has sparked a very bearish tone to the sugar spot market. Traders are fearful that washouts could increase to near 600,000 tonnes quickly if sugar prices don’t bounce as India buyers pay a stiff penalty and back out of deals. An official with the India Mills Association indicated that sugar supplies in India are comfortable and that the country does not require further imports. Spot prices in India have slipped to the lowest level since October. May sugar pushed sharply lower on the session yesterday and moved to the lowest level since early August. A strong US dollar, weakness in the energy complex and a higher production estimate from India are all factors which helped spark another round of long liquidation selling and the move under last week’s lows attracted additional selling pressure. Pakistan announced a tender to buy 200,000 tonnes of white sugar but this failed to provide much support and the speculator long liquidation selling helped drive the market lower. This selling continued in the overnight hours and May sugar is down as much as 358 points off of Monday’s highs and more than 1000 points (10 cents) off of the February 1st reversal top.
The COT reports on the weekend showed that speculators were still in a long liquidation mode and that speculators still held a massive net long position. Non-commercial traders (funds) still held a net long position of 153,218 contracts as of March 2nd. Russia imports in January came in at 82,600 tonnes from 12,700 tonnes last year as the import tariff is down and could slip further in the months just ahead.

TODAY’S GUIDANCE: Buyers could emerge on the break but for now, minor bearish news is snowballing to major long liquidation selling. A 50% retracement of the entire bull market of 2007 to 2010 comes in at 19.38 and this may now act as short-term resistance with 18.43 as next target.

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The market continues to see a massive long liquidation sell-off and pushed to the lowest level since November for the October futures overnight. Open Interest peaked at 897,343 on February 4th and was 756,950 contracts yesterday. The market faces continued extreme tightness in the cash market for the next month or so but traders await a new harvest from Brazil soon. Traders believe the taker of the large deliveries may not have a home for the sugar which just added to the aggressive selling yesterday as a lack of interested new buyers in the cash market recently has been an added negative force. The real key to avoiding another world production deficit for the coming year will be weather for India and China as both regions have seen sub-par crops in the last two years and India saw an especially poor crop last year due to poor monsoons in June and July. The China sugar Association believes this years crop will be near 11 million tonnes from 12.43 million last year. This could leave a significant production deficit. May sugar collapsed to close sharply lower on the session yesterday and moved to the lowest level since early December with fund traders noted as aggressive sellers. Keep in mind; the combined spec net long position (small and large specs combined) as of February 23rd was still 186,603 contracts. This was down 22,219 contracts for the week but this is still a very large net long position. Traders indicate that the slow pace of demand in the past few weeks in the cash market and big deliveries against the March contract helped to pressure. The move under last weeks lows added to the bearish tone and sparked more selling. Deliveries came in at 11,951 contracts as compared with expectations for 5,000-10,000. Exports from Brazil for the month of February reached 979,900 tonnes, down from 1.289 million in January and up slightly from 940,700 tonnes in February of 2009. Ethanol exports were just 21,400 liters from 152,900 liters in January and down from 118,500 liters in February of 2009.

TODAY’S GUIDANCE: The market is still looking for a low enough price to find increased interest is sugar and speculative long liquidation selling could remain active.

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The technical set-up remains bearish as high open interest, a very large net long position from fund traders and a long liquidation mode from trend-following funds helps drive prices lower. With the trend turning lower and trend-following funds net long 118,228 contracts, the selling intensified yesterday as last week’s lows were taken out. Ideas that the Brazil crop is coming along well and that the new crop supply will begin to ease the tightness on the world market helped to pressure. Traders see new crop hitting the market by late March and early April or sooner if the region turns dry. In addition, traders see the recent high prices as a reason to suspect declining global demand. May sugar closed sharply lower on the session with May futures driving down to the lowest level since December 22nd. The sharp drop in the open interest combined with a hefty net long position of funds has traders nervous over the potential for more long liquidation selling ahead. Last week’s indications of strong demand from India failed to support a resumption of the uptrend and the outside day down yesterday helped to spark more selling; especially when the market penetrated last week’s lows. The selling and the break stopped right on the 100-day moving average at 24.03 basis May futures. The market last closed under the 100-day moving average on December 9th. May sugar is now down as much as 18.1% off of the February 1st high. The key reversal on February 1st was confirmed as a top with a weekly key reversal for the week ending February 5th. A government panel on Friday indicated that India needs to urgently import 3-5 million tonnes. Lower than expected production from Mexico and increased demand from the US had traders looking for Mexico to import some sugar and export to the US. The International Sugar Organization revised their world production deficit forecast for the 2009/10 season to 9.4 million tonnes from 7.2 million previous. The deficit last year was 11.7 million tonnes.

TODAY’S GUIDANCE: The liquidation threat looks significant and the short-term trend looks down. Resistance for May sugar comes in at 24.40 and 25.03 with 23.07 as next objective.

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After the sharp break of more than 15% last week, sugar has consolidated in a choppy range this week. The weaker tone coming from outside markets and fears of the overbought condition of the market helped spark the sell-off and traders are now trying to determine if a major top is in place. This is difficult to say as cash trader psychology and spec trader confidence are important forces. From a fundamental point of view, the market remains in an extremely tight stocks situation and the tightness looks to persist until at least April and much of the early harvested cane crop from Brazil is likely spoken for so there could be another leg higher in prices into late February or March. May sugar closed moderately lower on the session yesterday but well off of the early lows. Selling pressures eased on the day after the US dollar fell back from the early highs and energy markets and the stock market firmed. Ideas that the tightness issues for the market will be resolved when Brazil harvest gets going in the spring and a lack of new news for the cash market helped to support. Brazil harvest in the center-south region is winding down as rains make it slow to get much complete during the rainy season but mills have stayed open much longer than normal as high prices for sugar and ethanol are attractive. For the April09 to March10 season, Brazil mills in the center-south region have crushed 529.6 million tonnes, up 5.7% from the previous season. The region has produced 23 billion liters of ethanol, down 7.4%. Pakistan has dropped a tender to buy 150,000 tonnes of white sugar due to problems with the terms of the lowest bidder. India mills are shutting down earlier than normal this season in the two largest producing states due to lower cane supply. The Brazil government is coming out with a series of measures to boost fertilizer production as the country imports near 65% of their needs. For the 2009/10 season, Mexico has produced 1.609 million tonnes of sugar, down 9.97% from last year.

TODAY’S GUIDANCE: May sugar support comes in at 25.72 with 26.94 and 27.42 as resistance. A resumption of the uptrend will leave 30.55 as a longer-term objective.

TODAY’S MARKET IDEAS: Given the strong cash market fundamentals, the market seems to be in a position to at least challenge better resistance points in the 26.94-27.42 zone soon.

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The market inched higher in overnight trade pushing to a new 29-year high before pulling back to trade lower late in the overnight session. The market appears to be well supported by speculators on minor set-backs. Talk of disease issues in Brazil and a tighter than expected market in China helped to provide underlying support. A local government official in China’s largest producing region (Guangxi) suggested that production could slip about 700,000 tonnes from last year due to drought-type conditions since August. Traders expected a drop of near 350,000 tonnes from the region so the talk was seen as positive. China has already released near 860,000 tonnes of sugar from state reserves as a way to ease prices but traders suspect a production deficit of near 2 million tonnes or more from China this season. March sugar closed 90 higher on the session Friday and closed up 112 points for the week last week. The market pushed to a new 29 year high at 3033 before pulling back to close back under 30.00. Extreme tightness in the cash market and indications that cash buyers are a bit more active helped support the aggressive buying. Ideas that the market is overbought helped spark the sell-off early in the week but buyers were active Friday despite bearish outside market forces, a strong US dollar and another break in energy prices. The Commitments-of Traders reports for the week ending January 26th showed a light selling trend from speculators who reduced their net long position by 5,619 contracts to 230,453. Index funds reduced their net long position by 4,257 contracts to a net long of 139,538 while non-reportable traders (small specs) reduced their net long position by 5,562 contracts to 41,132. The selling trend is a short-term negative force and the hefty net long position of the speculator leaves the market in an overbought status but still not at an extreme. Traders remain concerned with the possibility of tightening credit in China and a slowdown in the recovery. Traders are lightly concerned with potential losses in Brazil sugar production due to the spread of orange rust fungus. The fungus spread to two more regions in Brazil. Traders do not see major losses from the fungus and 70% of the cane is already resistant to the disease. With about 15% of the cane crop re-planted each year, resistance varieties will soon be fully used.

TODAY’S GUIDANCE: Weakness in London and a threat of a reversal today if the market closes lower may keep new buyers away. However, commercial buyers are likely to be active on corrections.

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The market looks to remain in a volatile state as “uncertainty” over the impact of the proposed new banking regulations was enough to spark a long liquidation trend overnight. While futures saw a recovery into the close yesterday from a severe mid-session break, the selling from liquidation emerged again overnight. Limiting the speculative activities of banks could have some impact in the long run on market prices but the initial reaction is clearly negative. Keep in mind; index funds held a net long position of 166,564 contracts as of January 12th and hedge funds (trend-following funds) were net long more than 125,000 contracts. While there is only a very remote chance that any of these funds will be forced to liquidate or will be closed without bank sponsorship, the uncertainty may be enough to spark some short-term selling. March sugar closed slightly higher on the session yesterday after a wild and volatile day. With a range of 114 points, March sugar closed just 15 higher on the day after making new 29 year highs early in the session for the third day in a row. The market was supported by a surge to new all-time highs in the London futures and the volatile session came about with a clash of short-term bearish outside forces such as a sharp decline in energy markets and the stock market with the presence of significant buying interest for new cash business. Talk of Russian imports ahead and tight India stocks helped support. Growers from Mexico indicate that the country will need to import near 450,000 tonnes this year to rebuild inventories and to meet export commitments. The Agriculture Minister indicated that the crop will slide to the 4.5-4.9 million tonne level as compared with production of 4.96 million tonnes last year. Last year’s production was low and forced Mexico to import 550,000 tonnes. There is also talk of a fungus disease in Brazil which has been floating around for a week or so but without confirmation.

TODAY’S GUIDANCE: There is increased risk to a long liquidation sell-off with yesterday’s news. Support for March sugar comes in at 28.63 and 28.27 with 31.02 as next upside objective.

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The market looks to remain volatile in the months just ahead as we see a shift from an extremely tight cash situation to more supply as the 2010/2011 crop from Brazil starts to see some progress. This may not be significant until April or May so the next few months could remain volatile and if buyers need sugar, there could be more upside potential. Brazil has temporarily cut the mandated amount of ethanol in their gasoline blend to 20% from 25% due to tightening supply during the non harvest period. Indonesia sugar production came in below expectations at 2.4 million tonnes which is well under the recent government forecast of 2.67 million tonnes from October and this could lead to increased import buying. Three Indonesia state firms bought a total of 147,500 tonnes of white sugar. The Philippines may import near 100,000 tonnes of raw sugar and may also release government stocks onto the market in an attempt to keep local prices down. March sugar closed sharply lower yesterday for the third session in a row and has now dropped 220 points from Thursday’s highs which were also 29 year highs for the nearby futures. Talk of aggressive selling from index funds, thought to be re-balancing, helped to pressure the market. Talk of the extreme overbought condition of the market and ideas that the market has seen a loss in upside momentum and a key reversal from Thursday helped to pressure the market as well. Talk of increasing supply ahead as last year’s high prices could spark a significant supply reaction for the second half of 2010 was seen as a potential bearish force ahead. The COT reports for the week ending January 5th showed a long liquidation trend from index funds who were net sellers of 4,464 contracts on the week to reduce their net long position to 187,769 contracts. Ideas that India will continue to be a strong importer in the months just ahead and the lack of a supply from Brazil are seen as a positive short-term forces for the market.

TODAY’S GUIDANCE: The market seems vulnerable to a significant technical correction but the break may not last long as there appears to be more demand and tight supply ahead. March sugar near-term support levels include 26.93 and 26.58 with 29.80 and 30.42 as next upside objectives.

TODAY’S MARKET IDEAS: Consider buying breaks.

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A weak dollar and a jump in gold prices supported a recovery bounce overnight but it will take a move to new highs or over 27.49 March sugar to negate the potential impact of the key reversal from contract and 29 year highs. The market remains in an extreme overbought condition but outside market forces are positive and longs have little reason so far to move to the sidelines. A lack of new selling interest in this environment is seen as a positive force until support levels are violated. RSI indicators are showing an overbought condition but also a series of lower highs in the RSI during a period of higher highs for the market and the divergent signals suggest a loss in upside momentum. March sugar in London managed another new all-time high overnight which may help provide some underlying support. Egypt has extended the exemption of raw and white sugar import duties until June 30th which may help stimulate import demand. March sugar saw an impressive rally into the middle of the session yesterday and challenged the contract highs before closing slightly higher on the session and down 44 from the highs of the day. London white futures managed new all-time highs on the session as news of increased demand from Pakistan and Iraq helped to support. Pakistan plans to issue a tender to buy 150,000 tonnes of white sugar on January 1st. This is the first tender with a goal to import 500,000 in order to meet domestic needs and maintain strategic reserves. The Trade Minister in Iraq approved the purchase of 250,000 tonnes of white sugar which helped provide support and there was further talk of too much rain in Brazil which has halted harvest activity. Harvest is normally complete by now as normal rainfall is too much to deal with but sharply above normal rains for the second half of December have brought the harvest activities to a complete halt in most areas.

TODAY’S GUIDANCE: The market is showing signs of a near-term top from an extreme overbought condition. March sugar near-term resistance is at 27.49 and a move under 26.92 could spark long liquidation selling and a correction to key support back at 25.14 and 24.42.

TODAY’S MARKET IDEAS: Longs might consider exiting the market or at least sell some call premium while aggressive near-term traders can trade from the short side for the next week to ten days.

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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.

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The market has seen weak technical action in the last several weeks until the turn higher on Friday which seems to have set a near-term bottom. India demand appears to be higher than trade expectations and traders are also seeing a tighter supply from China and other key consumers which might begin to rekindle a bull trend into early 2010. The technical action is improving and outside market forces look positive. Statements from India’s Farm Minister this week suggests imports of near 7.5-9.5 million tonnes of sugar this season which would be well above trader expectations thought to be near 5 million tonnes. With the Brazil harvest all but complete, traders also indicate that excessive rains may have lowered the yield. In addition, India industry officials are questioning the 16 million tonne forecast for India production as yield may not be as high as expected. India produced just 14.7 million tonnes last year and 26.3 million two years ago with consumption thought to be near 23-24 million tonnes. March sugar closed slightly higher on the session yesterday but well off of the early highs. Strength in the metals and a sharp rally in the stock market along with a sharp break in the US dollar helped support the market early but there was a lack of aggressive buying from speculators and the market stayed inside of Monday’s range. Brazil exported 1.85 million tonnes of sugar in November as compared with 1.7 in October and 1.413 million tonnes last year. Ethanol exports, however, were just 193,700 liters from 326,400 in October and 506,200 liters last year. Traders also see a production deficit in China of near 2 million tonnes this season due to poor weather in the summer and this may also be a positive development; especially if China begins to import sugar.

TODAY’S GUIDANCE: The market seems to have clearly rejected a lower price level with the action on Friday. To show follow-through support, March sugar needs a move over 23.12 which will turn the chart pattern a bit more positive. A move through the downtrend channel resistance at 23.57 today may also attract new buyers. Support for March sugar comes in at 22.36 and 22.23.