A look at Sugar No 11 (above) shows a downtrend on the daily chart. Sugar recently took out the June lows and has been clearly selling off.
Considering the weekly chart (below) we can see that sugar is currently at levels not seen since January 2011. A further significant breakdown could lead one to eye up prices in the region of 15 to 16 cents a pound last seen in 2010.
The fundamentals behind this price action are an oversupply of sugar with particular focus at the moment on a pick up in cane production forecasts for Brazil, the worlds largest sugar producing country.
Sugar output in India is forecast to be lower than expected as a result of a poor monsoon, however, the market has shouldered this off as a result of the better than expected Brazil forecast hence we don’t see much support for prices will be kept up.
Some analysts suggest reasons for the price to stop its bleeding that revolve around a possible increase in demand from our good friends China who are trying to fiddle a domestic drop in prices through a stockpiling plan.
As well as India’s shoddy harvest the world’s second biggest sugar exporter Thailand could see poor cane production as a result of unusually dry weather.
Another suggestion by Ms Haque from Macquarie is that as a result of the high price of corn the ‘pop1’ producing drink companies in Europe, Asia, the Middle East might make the switch from high fructose corn syrup back to good old fashioned sugar.
Ms Haque thinks that we could see consolidation at the 19 – 21 cents a pound level and even perhaps a reversal at this point.
So traders, will the market price heed these fundamental factors or is it ‘bombs away’ bears still in play?