Sugar surges on short covering

NCDEX Mar Sugar improved 0.43% on Saturday due to short covering after sharp fall in the last 3 weeks and fresh buying witnessed at lower levels as value buying. Reports of probable lifting up the ban on Sugar exports in the near term also provided support to the bulls. Supply situation is worrying millers as might not sell allocated non-levy sugar quota for February.
India has made available 1.62 million tonnes of non-levy sugar for February, including 300,000 tonnes unsold stocks of January. The Indian government is considering the demand to completely lift the ban on export of onion and sugar (Source: Business Line).
Raw sugar futures as well as Liffe White Sugar futures settled 0.85% and 0.45% lower on Friday, due to better production estimates of sugar in Brazil this year. Long liquidation by the market participants was also witnessed at higher levels.
Domestic Production
According to the second advance estimates on crop released during the last week by agriculture ministry, India’s 2010-11 Sugarcane output is seen at 336.7 million tonnes vs Sept estimate of 324.9 million tonnes. The Indian Sugar Mills Association (Isma) had revised the country’s sugar production downward to 25 million tonnes (mt) for the 2010-11 season against 25.5 million tonnes estimated earlier due to lower recovery rates in Uttar Pradesh.
According to ISMA, Sugar output in Uttar Pradesh is lowered to 6.4 mt from 7 mt due to late rains, while in Maharashtra, the country’s biggest sugar producer; it is kept unchanged at 9.4 million tonnes. Domestic consumption for 2010-11 is projected at around 22 million tonnes.
Due to dry weather in Brazil in 2010, the crop prospects were not so good, rains were scarce and crop was developing poorly, but good rains since last month coupled with higher usage of fertilizer have improved the Sugarcane crop prospects in Brazil.
Brazil's center-south (90% of total production in Brazil) 2011/12 cane crush is estimated at a record 566 million tonnes, up from 560 million tonnes forecast in December.
Thus, despite of decline in Australia’s Sugar exports due to floods and cyclone, global supplies would not fall much as Brazil would make up for any shortfall in Sugar globally. This would keep Global Sugar prices stable in the short term.
Outlook
Sugar prices in coming days are expected to recover on expectations that the government may very soon take a positive decision on Sugar exports coupled with downward revision of India’s 2010-11 Sugar output. However, the upside may be capped to some extent due to huge supplies in the domestic markets owing to higher quota of levy Sugar.
In the short to medium term, domestic Sugar price movement would be dependent on the permissible sugar exports from the country. Domestic sugar could gain if exports are allowed given the high sugar prices prevailing in the global markets.
We expect prices to trade slightly higher on fresh buying at lower and there is report about the lifting up the ban on Sugar exports are also in favour of bulls.

(Source: http://www.commodityonline.com/futures-trading/technical/Sugar-surges-on-short-covering-22055.html)