Artificial Sweetener
March Sugar is trading higher this morning, despite a higher US Dollar and bearish report from respected research firm F.O. Licht. The data suggests that the world Sugar deficit will be 1 million tons, which is at the lower end of the firm's estimates. The report actually paints a somewhat rosy view of supplies compared to other Sugar analysts' opinions that there will be very small deficits or a small surplus. The Indian crop has been smaller than average, but should satisfy domestic demand. Indonesia, which has historically been a net importer of Sugar, is expected to have a surplus of some 2 million tons according to a government source. It will be interesting to see how the market reacts to the opinion in coming sessions, as the supply side was the main reason that Sugar has been the best performing commodity for the year, up until this point. Demand, on the other hand, could be pressured by the weak economic conditions around the globe. Emerging economies have been a key driving force behind demand for the sweetener, but these nations are especially sensitive to price fluctuations. Sweets, after all, are luxury items, not necessities. Slowing economic conditions in Brazil will likely reduce demand for Sugar-based ethanol significantly. Falling Oil prices may pressure Sugar prices for two reasons: lower petroleum prices generally lessen the appeal of alternative fuels, and freight costs have dropped as a result of lower fuel prices. The lower freight costs make Brazil a much larger global player, and with a weak domestic economy curbing fuel ethanol demand, toverextended with the bailout packages, which could weaken the US Dollar.
The March Sugar chart shows the market falling back after being unable to move above the 13.00 mark. Traders have been disappointed that the contract has not been able to cross the 50-day moving average, which could signal more sustained rallies. For the market to retain some of the momentum it built earlier this month, it is imperative that prices remain above the 11.20 level. Failure to hold this near-term support could cause some speculative and index fund longs to exit the market. To spark renewed buying interest, prices may have to advance beyond near-term resistance at 12.35, signaling a W bottom. Momentum is showing bearish divergence from both price and RSI, hinting at near-term weakness.
