Brazilian Port Backlog Rallies Sugar Futures
???? Fundamentals
Sugar futures prices have rebounded off recent lows, as shipping delays out of Brazil and a move towards higher ethanol production have triggered short-covering buying by weak longs.
Front month May Sugar has moved to a premium vs. the July contract, as some traders appear to see a potential for tightening old-crop supplies if Brazilian Sugar exports are delayed. It is estimated that over 200 ships are currently waiting to load new-crop Corn and Soybeans at Brazil’s main ports, which is making it much more difficult to export Sugar.
In addition, increased profitability in the production of cane based ethanol, as well as Brazil’s increase in the ethanol blending mix in gasoline to 25%, should see more Sugar being used for fuel than for food.
Though current fundamentals are starting to look bullish, any significant rally attempt may fall victim to commercial hedge selling,as globally analysts still expect a sizable Sugar surplus this season, with some estimates looking for over an over 8-million-ton surplus for the 2012-13 marketing year.
Both large and small speculators are holding net-short positions in Sugar futures according to the most recent Commitment of Traders report, though it shows speculators lightening this short position in the most recent reporting period.
???? Technical Notes
Looking at the daily chart for May sugar, we notice the downtrend line drawn from the July 20th high was taken out during Thursday’s sharp price rally. The 14-day RSI has turned positive, with a current reading of 56.86. Looking at the price movement of the May/July spread, we note that since the middle of January, the May contract has rallied 0.50 points vs. July and may have signaled that the bear run is nearing an end.
The next upside resistance is seen at 19.00, with major resistance found at the 200-day moving average, currently near the 20.13 price level. Support is found at the February 15th low of 17.67.
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