Sugar Struggling to Find Support off of 29-Month Lows
?? Fundamentals
World Sugar bulls have apparently stood their ground, as front month March Sugar seems to have found some buying interest near 18 cents per pound. The Sugar market has been in a bear market for nearly 2-years, as a rising global surplus and increased production have cut prices in half from 2011 highs. Despite this large price decline, the fundamentals remain bearish.
First, Brazil, the world’s largest Sugar producer, is expected to see a large production increase for the 2013/14 season. Though a good portion of the crop will be used for Ethanol production, any increases in Sugar production cannot be viewed as supportive for prices given the current global surplus.
Higher Sugar production out of India and China, the world’s second and third largest producers respectively, should help curtail any major price gains. However, lower Sugar prices may find fresh buying from end users in the Middle East and North Africa, allowing consumers to restock inventories.
Technical traders will also note that March futures prices have been gaining on more deferred contract month prices, and that they even briefly traded at a premium to the May contract. A move in the term structure to a “backwardation” is usually viewed as a bullish indicator, as it suggests that buyers are willing to pay a premium for near-term delivery of a commodity.
It is still too soon to say if this price movement is signaling an end to the bear market for Sugar, or if it is only an aberration, possibly caused by the rolling of short positions out of the March contract and into more deferred delivery months.
?? Technical Notes
Looking at the daily chart for March Sugar, we notice prices rebounding off multi-month lows, as bears failed to send prices below the 18-cent price level. Though prices have rallied moderately off the lows, there appears to be some resistance in the 18.80 to 19.20 price area.
The 14-day RSI has rebounded somewhat, and is now reading a more neutral 40.79. Support is found at the contract low of 18.06, with resistance found at the January 11th high of 19.19.
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