Sugar markets in London and New York have been rather choppy in the last few days, experiencing extreme intra-day volatility with macro factors, the technical picture and fundamentals all exerting their respective influences at varying times and in varying degrees.

During the last two weeks, nearby contracts have gained as much as 5 cents a pound, with the October high at 3,168 and March at 3,025.

How crazy commodity trading can get is anybody's guess.

RELATION WITH EQUITIES

If at one stage, global sugar prices escalated with the sharp rise in gold prices; on another occasion, news that Mr Warren Buffet had made a $5-billion investment in Bank of America sent prices soaring, although no one has been able to explain the correlation between US stock valuations and sugar market fundamentals. Among the non-fundamental factors, the weak dollar, crude prices and stronger grains markets have contributed to sugar market gyrations.

However, notwithstanding the market shenanigans of this week, the one single factor that is expected to impact prices is the problem with Brazil's cane crush and strong possibility of a downgrade to Brazilian sugar production.

LOWER CRUSHING

The latest Unica (centre-south Brazil) report shows that the latest fortnightly cane crush is down 3 million tonnes from the previous period and 1.5 million tonnes lower than the corresponding period last year.

But the most pessimistic of Brazilian production is Canaplan's recent forecast of 476 million tonnes of cane output and only 28 million tonnes of sugar production for the year.

But there is also a sense that the market has already priced in the Brazilian scenario. In the event, can there be a further rally and what can trigger it?

According to global sugar market specialists, the next rally would have to be fuelled from a fundamental perspective by downward revisions to either Thailand's production or India's exports. Concerns over next year's Brazil centre-south issues can also potentially affect the market; but, at the moment, they are near-impossible to quantify.

TECHNICAL PICTURE

As for the near-term, downside issues could probably be triggered by deterioration in the macro-economic picture and/or a steep fall in crude prices.

It is also possible, if the market fails for any reason to sustain the rally, the technical picture may deteriorate and prompt long liquidation. In sum, moves in either direction cannot be ruled out.

Meanwhile, the physical market is expected to sort out whether the ongoing concerns about Brazilian centre-south crop will continue to offset the mostly negative influences of improved crops in Thailand, India and Russia.

Also, the question is how much China could import given its degraded domestic output, and at what price.

So, it is going to be an interplay of fundamental and non-fundamental factors in the sugar market over the coming weeks.

Trading in such a market is likely to rather tricky.

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