Raw sugar futures finished firmer on Friday on investor buying inspired by another robust rally in crude values, but analysts feel market bears will reassert themselves if oil prices stall or falter next week. The key July sugar contract rose 0.15 cent to settle at 11.61 cents per lb, dealing from 11.40 to 11.80 cents.
It was an inside day since the range was within on Thursday's 11.33 to 11.92 cents band. Volume traded in the contract was at 27,358 lots at 2:10 pm EDT (1810 GMT). "It's really up to crude. If it goes nuts and rallies to $150 barrel, then we go along for the ride. But the technicals and the fundamentals indicate we should be going down. So take away crude and we should head lower," a dealer for a major trading house said.
Sugar prices have kept pace with the surge in oil values because spikes in crude would tempt producers into using more cane to manufacture the alternate fuel ethanol. In fact, the International Sugar Organisation (ISO) has already forecast that top grower Brazil will likely use only 42.7 percent of its cane to produce sugar and the rest will be churned into ethanol.
Fundamentally, there may be a small deficit in the 2008/09 season, but massive surpluses in the proceeding two season's act like a millstone on the market. But with investment funds flooding into sugar, as they have in other commodities, the fundamental factors are only one part of the equation in sugar. "It is clear that the net inflow of funds in sugar futures is a decisive driver for today's world prices," ISO executive director Peter Baron said at the annual Sugar Club dinner on Wednesday.
For now, technicians feel support in the July sugar contract would be at 11.25 and 11 cents, with resistance pegged at 12 and 12.50 cents. Total deals done on Thursday were at 118,642 lots, the exchange said. Open interest in the No 11 raw sugar market fell 2,985 lots to a revised 920,345 contracts as of May 8, it added. The US electronic domestic No 14 sugar market showed the July contract up 0.03 at 20.63 cents at 2:12 pm (1812 GMT). Volume traded on Thursday in the No 14 sugar market reached 100 lots, the exchange said.