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Morning Briefing

Special Report on Sugar

2nd May, 2007


REVIEW
Sugar, true to its cyclical nature has fallen sharply, down about 54% from the high of 19.73 c/lb on NYBOT seen in early February-2006. It would be worthwhile to remember that the Feb-06 high was, in itself, an almost 265% increase from the Feb-04 low of 5.40. While the fall in the Sugar prices itself was not surprising, the timing of the decline was unanticipated. What was also surprising is the pace of the fall in the latter part of 2006 and early 2007.

We had anticipated a big second-leg-upmove, mirroring the rise of the Seventies and Eighties, to be followed by an equally big and sharp fall. The second-leg-upmove did not materialize, instead there was a big fall from the interim top itself, as marked with a circle in the chart above



GOING FORWARD

Have prices topped out for next few years, or can they rise again, soon?

Sugar being a cyclical commodity, where each new cycle generally mirrors some earlier cycle, we can anticipate the future by looking backward into its history of booms and busts. Generally, we see that Sugar takes time to recover after a sharp sell-off.

As seen in the chart alongside and the table below, since 1990, there have been four sharp crashes in sugar prices after a lengthy run up. In 1990-91 (down 54%), in 1995 (down 39%), in 1997 (down 67%) and currently in 2006-07 (down 54%). The red circles on the chart show the tops, while the blue rectangles show the subsequent lengthy, sideways consolidations.

Currently, 8.02 is an important Support, the lowest level in 2005. It is about 12% below the current level. A deeper fall below that would be hard to digest, as historically the worst fall has been 66%. Going by this, we could be nearing the end of the fall in sugar prices. However, in each of the earlier three occasions, after the crash, prices did not set a new high for the next two years. Thus, going forward we could see Sugar trading within 8.00 on the downside and 12.00 on the upside for the next couple of years

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