March09 Sugar
The last five days have seen MAR09 ICE sugar move down about a cent from the mid 14 range to just above the mid 13 range (see chart above). Our target price range for fair value March sugar is just above 13 cents, so we feel that the current trading range is slightly overvalued. The current weather pattern in Brazil’s Centre-South, while slowing the current harvest, will still be beneficial for the start of next year’s crop, although slightly warmer temperatures would be a more favorable pattern for the C-S. The market has also been reacting to news of next year’s crop in Brazil. We mentioned last week that there were fears of tightness in physical supply, leading to higher support levels for the MAR09 contract. The International Sugar Organization has recently stated that their expectations for Brazil’s 2008/09 production will be higher due to a weaker Real, lower crude prices and lower domestic production costs, encouraging more sugar production (over ethanol). The market took this as a positive supply signal, and futures have softened. Our outlook agrees that while the situation in Brazil is still a healthy one, but we feel that the uncertainty surrounding currency strength and energy futures are not solid grounds for speculating on the direction of sugar. Brazil might have a healthier supply situation than previously thought, but the situation in other origins is not as favorable. We are still expecting conditions to limit production and yields in Australia, India, and now Thailand for next year, and this will serve as support in the coming months. Even though our stated range is below the current market, these longer term factors are bullish for March futures. If we see retracements to the low 13 cent range, this may be an attractive entry point for March. We encourage subscribers to view our long range outlooks for weather and crop assessments at the major origins (sugar, grains, energy), to start identifying opportunities for 2009.
