India Sugar Update
March09 ICE sugar futures crossed levels not seen since early November, as yesterday’s close was at 12.55; May09 finished the session at 12.81. Still early to say if this is the rally that some are calling for, but current activity may be indicative of new lows for longer range positions. Early activity on Wednesday is down (Mar09 -0.19; 12.40 at the time of writing) but the outlook still falls within the range of what we are expecting at this stage. We mentioned in a previous post that March has been trading mostly in the sub-12 cent range over the last two months, and anytime March is in the 12.20 range, these are good entry points.
For May09, the 12.35 – 12.5 range looks like a strong foundation for the coming months. In recent months, we have been stressing the crop potential in India, the world’s second largest producer. We of course monitor Brazil, but with all eyes on the Centre-South, news from India and the relationship to the global supply situation sometimes gets overlooked. While the numbers may be a bit high, we generally agree with the projection that Czarnikow came out with putting the global deficit at 5.8 million tons (the WTI estimate is currently showing a 5 mmt deficit). Further, the Indian Sugar Mills Association have recently dropped their number for the domestic Oct/Sep 2008/09 crop year, putting production at 18 mmt, down from the 19.2 mmt estimate issued in December. The Indian crop for this and next crop year has the potential to be reduced further, given the outlook. Weekly rainfall forecast totals vs. last year are shown in the maps below. At mid-planting stage, while the northern growing belt in Uttar Pradesh should get off to a good start, the central and southern belts could use more moisture at the early stages in the crop cycle. Our precipitation forecast does improve for the south in March, but it is important for the crop to get off to a strong start. Given that many commodities across the agriculture/softs complex have scaled back, perceived physical tightness could be a big factor for sugar and grains later in the year. WTI’s fair value March09 sugar remains in the 12.3 to 12.9 cent range, and the view for May09 is between 12.6 and 13.1 cents.
