March09 ICE sugar futures showed some strength early in the week, moving up about a cent (11.2 to 12.2) before trading down in the mid to upper 11 cent range by late Tuesday (closing at 11.71). Technicals support a slightly lower open on Wednesday. The US dollar slid some more against the benchmark currencies, and this is lends some price support, however, a stable supply outlook and good weather for harvesting cane can limit movement on the upside. WTI still maintains that dips on March09 in 11.1 to 11.5 cent territory are viewed as attractive entry points, as our longer term expectations are for gradual support for futures prices.

A weaker dollar will make physical sugar purchases an attractive to buyers with stronger currency position. With no significant issues in Brazil (which can of course change quickly), some pressure can be taken off of the world’s largest producer. Lower crude and subsequent decreases in the grains complex (soybeans and wheat closed lower; corn was mixed) will ease the sugar supply situation, allowing more diversion of cane to sugar production. Readers of our grains reports will note that our extended outlook for the grains complex is however constructive to the market, as we feel that the recent WASDE has overestimated yield potentials in the US and other major origins, and this should lead to a reversal in the market later in the year.

In spite of favorable weather in Brazil, the wildcard this year will still be India. More news of the extend of the short crop in India is now in the market; a factor that we have been discussing all summer, and we addressed this topic in more detail during our monthly market call earlier this week. Global sugar inventories may not match the higher global demand for the start of the Oct/Sep 2008/09 crop year; with a smaller Indian crop this year and next year, March, May and even July 09 futures will start to see additional support as we move towards the end of the calendar year. The next WTI monthly commodity review will be held the first week in November.

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