Sugar

Well, it's official. The International Sugar Organization (ISO) has declared that commodity funds have increased their presence and participation in the Sugar market. And "as a result, fundamentals and prices became disconnected" was the quote on the Dow Jones wire service. Very well put. I'm not sure how timely, but it is certainly a correct statement. The ISO also dropped its 2007-2008 world production forecast to 168.4 million, which is down from the last forecast but still up from 2006-2007 output of 166. The wire story claimed that 2008-2009 "first indications" would suggest a better balance between consumption and production. With crude at more than $100 and corn marching higher and higher, the argument for sugar fundamentally gains steam. But it is still all fund buying and the resultant producer short-covering driving this market, and we still have to contend with the current surplus and it is still overbought with a relative strength index reading of roughly 73. A floor source says the funds are doing significant buying at times where the market is thin, apparently trying to drive price higher. Producers continue to cover short positions, and there is talk that 15.00 in the May contract is the next area where producers will sell.

Orange Juice

Some of you may have been filled on the trade from the previous eView:
Buying 1 May OJ 130 Put
Selling 2 May OJ 120 Puts @ a spread difference of 150.

OJ has been dropping, and this trade is going in our favor. Look to buy back the 120s at 100 or better on a rally in the May futures, with the idea to hold the 130 into expiration. The weekly chart shows support in the 118.20 area, with next stop near 114.50 and the market projected much lower than that. It is said that Florida Oranges seasonally run the greatest risk for frost damage in March. This seasonal is contrary to the recent entry of the funds on the short side. Because of this, we could see a rally attempt over 130, but I would not expect these levels to hold for long.

The risk of loss in trading commodity futures and options can be substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.