Bearish fundamentals for world sugar futures
World sugar for October delivery ended last week’s trading at 9.43, which is just slightly lower than the previous week’s close. The March contract closed Friday’s session at 9.76. Both the short term and the extended outlook are supporting continued bearish fundamentals coming out of the major producing origins; technical signals also indicate that the coming week should continue trading lower. The current trading range for world sugar futures is largely the result of favorable weather. The current dry season on CS Brazil is closely following the pattern that Weather Trends International had forecast last year. Following the anticipation of a couple of wetter weeks in October, we expacct the dry season to end as normal in November. Given the pace of the current harvest, the timing of the end of the dry season would be sufficient for growers to get most, if not all, of the higher quality cane out of the ground before December. What little cane might be left by Dec will not have much of an impact of the global balance. In addition to Brazil, Indian Monsoon activity has been healthy for the current crop; a factor already priced into the market. However, India’s ability to produce has been supported by the recent ISO estimate for 2007/08 (Oct/Sep) production of 33.2 mmt.
Weather notwithstanding, there are still short term factors that can cause price spikes. As we mentioned last week, the devaluation of the Brazilian Real vs. the USD can impact the market in the short term. The devaluation will have many producers holding stocks or selling domestically, waiting until margins are better to export. Further, while Brazil can still remain profitable with single digit world prices, this is not the case in most other origins. At this stage in the year, the weather focus now starts to turn towards next year’s crop.
