Sugar Prices Slump on Large Global Surplus
???? Today’s Spotlight Market
The world Raw Sugar market is not alone in the clutches of commodity bears. Domestic U.S. Sugar prices have fallen to lows not seen since 2009, as the U.S. is expected to produce a surplus of Sugar this season. U.S. Sugar production is expected to increase by nearly 6% this year, and supplies from Mexico, which are allowed into the U.S. without tariffs due to the North American Free Trade Agreement (NAFTA), are expected to increase by over 50%. The 2008 Farm Bill set a floor for domestic Sugar prices, and the USDA may be required to purchase Sugar from domestic producers if prices fall too far.
???? Fundamentals
Sugar futures prices are struggling to rebound following a move to nearly 3-year lows on concerns that this coming season’s supplies will overwhelm demand. The Brazilian sugarcane harvest is currently well under way, as drier weather conditions are helping producers move through the fields. Some analysts expect Brazil to produce a record sugarcane crop in the 2013-14 marketing season, which will likely add inventory to already burdensome carryover totals, estimated at 8.5 million tons expected from the 2012-13 season. Chinese sugar imports were over 20% lower in March compared to the previous year, as higher domestic production lessened the need for foreign purchases. Lower imports by one of the world’s largest buyers of commodities add to the credence that global demand may be sluggish this coming season. Sugar bulls will counter that current low raw Sugar prices may persuade cane producers, especially in Brazil, to switch production towards ethanol and away from food usage, but it is still unclear if this will be enough to make a significant dent in global Sugar supplies.
???? Technical Notes
Looking at the daily chart for July Sugar, we notice prices falling below the recent 17.50 to 18.00 trading range prices have been in for most of April. However a failure to come close to testing the 17.00 price level triggered a bout of short-covering buying which has moved prices back towards the low end of the recent price range. Volume in the July futures has increased lately, but this is mainly due to the rolling of positions from the May contract ahead of the last trading day on April 30th.
The 14-day RSI is weak, with a current reading of 37.74. 17.25 is seen as the next support point for July Sugar, with a move below this level signaling a potential test of 17.00. Resistance is seen at the recent high of 17.97 made back on April 12th.
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