Indian sugar supply concerns lift raw futures to 2-month high. Monsoon uncertainty threatens exports
Raw sugar futures have reached their highest closing price in two months due to concerns over Indian exports. India, the second-biggest sugar shipper, is expected to curb supplies for the season starting in October. India has ramped up restrictions on rice exports in recent days as the nation tackles rising food costs before an election next year. Lack of rains threatens to cause a shortfall in Indian sugar production, which could lead to export restrictions. The Raw sugar contract rose for a fourth straight day in New York, climbing as much as 2.7% to 25.49 cents per pound. Citi believe raw sugar prices at ICE (NYSE:ICE) exchange SBc1 will stay elevated for a longer period, possibly testing fresh highs, mainly due to expected production difficulties in Asia and the possible ban on exports from India. The bank expects money managers to increase positioning in raw sugar futures on ICE in coming weeks and see the possibility of prices testing higher levels around 27-30 cents in the last quarter of the year.
Indian shipments are key to satisfying global demand after the harvest in top shipper Brazil ends later this year. A concern with a shortage of sugar in the first months of 2024 has caused a jump in the spread commanded by the March futures contract over the price for delivery in May. In Brazil, scattered rains are seen hitting Center-South, the top growing region, for the rest of this week, according to meteorologists at Rural Clima. Above-average rains could disrupt sugar-cane harvesting and interrupt loadings at the main ports, bringing additional supply concerns.
Sugar crops in some of India’s major growing regions are in desperate need of rain as drier conditions threaten the production outlook, which may place more pressure on containing rising food costs. Rainfall is badly needed to replenish groundwater used for irrigating crops in Maharashtra, India’s biggest sugar producer, accounting for about 37% of output. If rains improve in the balance period of the monsoon season, the situation will take a turn for the better. A smaller crop could prompt the government of Prime Minister Narendra Modi to curb exports to prevent a surge in domestic prices ahead of elections early next year, similar to the measures India has already implemented on rice.
The Indian government will make a decision about overseas sugar shipments for 2023-24 when actual estimates of total production are available, according to the food ministry. India allowed mills to export about 6.1 million tons in 2022-23, compared with 11 million tons a year earlier after late rains reduced yields and cut output. The New York contract, which climbed for a third day after reversing losses, is headed for a 2.3% weekly gain.
Based on the analysis provided, it seems that the ICE Sugar weekly chart is showing a cup and handle pattern, which is generally considered a bullish continuation pattern. The pattern is currently forming with prices trading around 0.2566 levels, significantly above the 200-day moving average. This is a positive sign, especially when coupled with good trading volumes. The recent handle breakout above 0.2048 further reinforces the bullish sentiment, suggesting a potential upward move. Over the past month, prices have been trading within a range of 0.2360 to 0.2756 following the handle breakout. This period of consolidation might indicate a temporary equilibrium before the next major price movement.
It’s worth noting that a significant price level to watch is 0.2756. If prices manage to break above this level, it could signal a strong bullish momentum, potentially leading to a sharp price increase towards 0.3190. This target is determined by measuring the depth of the cup and projecting it upwards from the breakout point. However, if the prices fail to sustain the upward momentum and retreat below the 0.2360 level, it could trigger a pullback scenario. This could bring the prices down again, potentially leading to a retest of the support at 0.2360. In conclusion, based on the cup and handle pattern, the current price level, and the handle breakout, the technical analysis suggests a bullish outlook for ICE Sugar. Traders and investors should closely monitor the price action around the 0.2756 level, as it could serve as a crucial pivot point for the anticipated price movement. As always, it’s essential to consider other factors such as market news, macroeconomic trends, and geopolitical events that could impact sugar prices.
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