CSCE raw sugar futures finished sharply lower on Thursday as producers sold at the highs, sparking profit-taking by speculators, traders said.
"Yesterday's rally and the higher open today was met with producer selling," said James Cordier, president of Liberty Trading Partners.
"We had good bargain hunting and buying in the week and when producer selling came in at the high levels, specs sellers came in and then it started feeding on itself as the day went on.
"This shows the market is still pretty weak," he added.
March sugar tumbled 0.18 cent to close at 5.76 cents a lb, in a 5.75-5.94 range. May sugar ended 0.15 cent at 5.98 cents.
Other contracts settled 0.03 to 0.12 lower. Not only did March sugar's rally come well short of psychological resistance at 6.00 before turning lower, it was also a far cry from crucial gap resistance between 6.07 and 6.10 cents.
March sugar closed on Thursday at an important psychological and technical support level of 5.75 cents, which puts it at a critical level for Friday's action, traders said.
"If we trade lower going into the end of the week, we may test the lows from late last week of 5.66," Cordier said. "We're at an important support level.
If we go down even a little bit lower on Friday, we could have a lot of people not wanting to hold sugar going into the weekend, and have more selling based on that," he added.
Support sits at the December 31 low of 5.66 cents, a level last seen in September 2002. Next support lies at 5.50.
Some analysts called this week's sugar rally precarious, because the large funds never participated and sugar fundamentals remain weak with and oversupply and tepid demand.
Other participants argue that sugar was severely oversold at last week's low and funds already hold heavy short positions that they acquired rapidly in about a two-week period, which could mean for limited losses on Friday.
On Thursday's final volume was seen at 33,523 lots, compared with 22,854 lots previously. Call volume was lower at 2,281 lots, and puts were up at 4,174 lots.
Open interest in the No 11 sugar market rose by 3,343 lots to 224,148 on Wednesday. US domestic sugar was mixed to higher on Thursday.
March sugar rose 0.04 to 20.34 cents a lb. may gained 0.03 to 20.29 cents. The rest finished down 0.04 cent to up 0.05 cent. Final traded volume came to 196 lots, up from 1,661 lots previously.
The CSCE is a subsidiary of the New York Board of Trade.