It is expected that sugar supply in India will outpace the demand for a fourth year due to higher cane yields. Sugar production is forecasted to be 24.42 million metric tons this year opposed to forecasts for demand of 23.5 million metric tons. Sugar futures have declined over 50 percent from February 2011, a 30-year high.
Inventories in India, the world’s second largest producer, increased to a five-year high of 8.85 million tons by the start of the season. According to the International Sugar Organization, the current Indian supply will meet demands for four months. “The surplus in India is currently acting as a cap on world prices,” mentioned Charlotte Kingsman, an analyst with a unit of Platts.
Sugar No. 11 futures have followed the Fibonacci retracement nicely from the year’s high to the low. Price action broke through the 50 percent retracement and bounced of the 61.8 percent level. Sugar futures seem to receive a little support at these levels, but converging exponential moving averages could provide further bearish sentiment. Price action looks to be capped slightly below the 200 EMA with the 20 EMA looking to converge into the 50 EMA to form a bearish crossover.
Upside potential to $17.91-$18 is possible, but a retest of the 61.8 level is more likely. A break of these levels, sugar will trade lower to just above $17 before seeing support.