Sugar in the Red: Just a Bump or is the Sweet Ride Over?

At the outset, there doesn't seem to be too much that can severely disrupt the momentum of the past four months or send the market completely in the reverse.

Yet, some analysts are cautioning that production is building. Others are citing the possibility of a further technical slide before bulls can regroup at the lower level to charge higher.

Output-wise, good progress is seen in the crop in major growing countries Brazil and Thailand, said Jack Scoville, chief crop analyst at Chicago’s Price Futures Group. He adds:

“Thailand expects to export 9.0 million tons of sugar in the current crop year, 7% more than last year. Ideas are that the market has also priced in production losses in India and Brazil.

Good production prospects are seen for crops in central and northern areas of Brazil, but the south has seen drier weather. There is concern that the rainy areas will stay too wet and delay the harvest and dilute the sugar concentrations in the cane in central areas. The harvest is active in Thailand. Australia and Central America harvests are also active while European production is expected to be reduced again this year.”

India, the world's second-largest sugar exporter, is likely to produce 34 million tonnes of the sweetener in 2022/23, down 7% from the previous forecast, a leading trade body said at the end of January.

The rally from a month ago was also helped by speculation that top exporter Brazil might also produce less if its energy policy improves ethanol's profitability.

On the charts side, sugar futures are strong enough on daily, weekly and monthly time frames to sustain their broadly bullish perspective, said Sunil Kumar Dixit, chief technical strategist at SKCharting.com. 

But he also cautioned that the market could retest support at the lower 21-cent level to find energy for a push higher, adding:

“Daily chart is nearly done with momentum distribution supported by the Relative Strength Index at above neutrality of 50 while Stochastics at 77/64 are firmly positioned.

But prices could also be awaiting a break above the symmetrical triangle resistance of 21.75 cents. The alternative is a retest of support at $21.40 before uptrend resumes with targets of 23 cents and 24.10 cents.”

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Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.