Since August, Sugar futures have been stuck in a narrow 1-cent per pound trading range, as a large world Sugar surplus has capped any rally attempts, and the increased usage of Sugar cane for fuel and rising Oil prices have drawn out buyers below the 10 cent area. India is holding on to a large Sugar surplus, with the International Sugar Organization estimating almost 11.5 million metric tons may be available for export. This news alone is keeping buyers at bay and encouraging commercial selling on any rally attempts to the 10.25 to 10.30 area. However, lower world prices for raw Sugar are encouraging producers to switch more cane production towards fuel usage, with Brazil expected to dedicate a bit more than half of its cane output to the production of Ethanol. With the fundamentals apparently stalemated, we turn towards how speculators are positioned in the market. The most recent Commitment of Traders report shows both large and small non-commercial traders are net-long a combined 73,386 Sugar contracts as of 10/2/2007. This sets up a battle between speculators and hedgers to see who will blink first and allow prices to move out of the multi-month range we have been in.

Turning to the daily chart for March Sugar, we notice how tightly would the three major moving averages have become as market volatility has declined sharply. The 14-day RSI is firmly in neutral territory with a current reading of 41.35. With speculators net-long Sugar futures, an attempt to move prices below major support at the bottom of the trading range around the 9.35 area, may spark a rash of sell-stops selling as longs throw in the towel. An attempt to rally prices above the 10.36 resistance area, should be met with stiff hedge selling, but if producers decide to hold back in hopes of higher prices, a rally above 10.36 could encourage large specs. To add onto existing long positions and a test of the 11-cent area would not be out of the question. In early trade, March Sugar is trading at 9.80, up 0.05.

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