Sugar analysts chew over recent price volatility

10.03.2017

Analysts are chewing over whether sugar futures in New York have found a floor, after bouncing late in the previous session.

There has been heavy technical selling in sugar markets, after front-month raw sugar futures broke through a band of technical resistance on Tuesday.

The selling continued on Wednesday, as the contract plumbed two-and-a-half year lows, but prices found sudden support at the very end of the session, jumping more than one percent in a matter of minutes.

That buying accelerated early in the Thursday session, but ebbed away as the morning, with prices nearing the previous session's lows.

March raw sugar futures in New York were down 0.7% from the previous close in late-morning deals on Thursday, at 18.27 cents, but holding above the 18.14 cent lows seen on Wednesday.

18 cent floor?

Tobin Gorey, at Commonwealth Bank of Australia raised the possibility that the late buying spree on Wednesday "might be the turning point that arrests sugar's decline".

"The market has history around 18ў where substantial buying has emerged in the past," Mr Gorey pointed out.

Front-month sugar markets found support around this level back in late 2016.

Did funds step in?

"The million dollar questions seems to be 'was that the low?' and 'was that fund buying last night?'," said Tom Kujawa, co-head of softs at Sucden Financial.

Mr Kujawa suggested that sugar importers, which need to build stock, are over dependent on an "efficient and clean" start to the

"The sugar bulls will point to the worlds end destinations (in need of restocking) over dependence on an efficient and "clean" start to Brazils campaign and make special reference to recent campaigns weather/logistics constraints having resulted in strong front month backwardations.

Still no sign of India

Sugar bulls have been repeatedly disappointed in their assumption that weak 2016-17 producttion in Asia will force increased buying, with the prospect of Indian imports the most keenly anticipated.

"Indian production estimates have dropped due to the bad monsoon weather and the country probably should import sugar this year, but might not as the political side remains against the idea," said Jack Scoville at Price Futures Group.

"It looks like bullish traders are now tired of waiting for India to act," Mr Scoville said.

"The old bull story is still intact, but it is old, and the market is in a strangely lethargic mood," noted broker Marex Spectron in a note released on Monday.

"The calm before the storm? The market which had been 'wanting to go up', now seems to be toying with the idea of going down."

China trims hopes

There was some support on Thursday from the news that the Chinese government has cut its forecast for 2016-17, increasing the country's expected deficit.

China cut its forecast for this season's sugar crop by 200,000 tonnes from last month's estimate, to 9.70m tonnes.

This leaves Chinese supply falling short of demand by 1.87m tonnes, compared to the 1.67m tonne deficit forecast last month.

But with upward momentum failing again on Thursday, analysts are asking whether the contract will fall through the next price floor, at 18 cents.

"Should we close poorly again this evening we seem likely to test 18 cents in the short term," warned Mr Kujawa.


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