A Bitter Taste
Fundamentals
Sugar prices continue to tumble on expectations that Indian output will be higher than previously expected. The bearish supply news comes on the heels of Indian buyers backing out of import deals, which has quickly cast a dark cloud over the Sugar market. The country is said to be adequately supplied at the moment and will not require imports at this time, which could result in a glut of supply on the market. The improved crop yields in India have the potential to increase output by almost a million metric tons over prior estimates. Neighboring growers, namely Thailand, have also increased their acreage to meet the global shortfall, which has alleviated some of the long term supply fears. Soft commodities as a whole have fallen out of favor with fund traders, as evidenced by the recent meltdown in the Sugar, Cocoa, and Coffee markets. The Dollar Index has also stood its ground. Both of these factors have given the Sugar prices little outside support. At this point, there would have to be a monumental swing in fundamentals for prices to rebound sharply from current price levels.
Trading Ideas
Given the scope and severity of the recent decline in Sugar prices, some traders may wish to tread lightly and look for volatility to die down before entering the market. It could seem foolhardy to enter into new short positions at this point, as the market may experience some short-covering. Instead, some traders may choose to look for a rebound as an opportunity to enter into a bearish option position, or to short the futures.
Technicals
The May Sugar chart can simply be described as catastrophic. Prices have broken sharply through support near the 22.50 and 20.75 levels sharply and are now testing the 50 percent Fibonacci retracement from the beginning of the rally at 19.40. If this level is broken, the May contract could tumble another 1.00 points before finding additional support. The oversold conditions on the RSI could spark some short-covering, but this may only be a temporary reprieve for bulls, as the recent sell-off has done major crop damage and could very well have changed the long-term market trend.
Rob Kurzatkowski, Senior Commodity Analyst
