Fundamentally speaking with domestic supply a real concern. Is sugar prices going to rise? I would imagine for the other grains in the US taking over the planting area due to the large price increase in Wheat, Soybeans and Corn. That sugar beets are not going to see a large acreage this year. With very poor planting weather for the sugar beets harvest will be small.

This all is factored in the latest USDA report of US ending stocks being less than half of the previous. The previous estimate was 1,273,00 and the estimate on July 11,2008 was for 607,000 for the 2008 - 2009 US ending stocks.

Sao Paulo increased its Sugar cane area by 2% to 4.9 million hectares so far during 2008/2009, according to Dow Jones. If Brazils emerging economy stays strong they may end up using the extra 2% to fuel the use in automobiles.

Technically, we are looking for a drop in sugar futures for a few reasons. First, would be, we see the October contract having a hard time breaking and sustaining above the 1400 price level. Also the March 2009 contract having a hard time breaking contract highs.

Volume and open interests are playing a role in the technical analysis. Volume has been steady for both contracts, and open interest has been falling which means money is flowing out and less long positions are being introduced. RSI and Stochastics are both trading in the over-bought position. With 10 day RSI at 71.53 for March and 66.63 for October. Stochastics are at 71.14 for March and 67.05 for October.

The last technical reason would be we are seeing the same chart pattern from last year just in larger numbers. On June 14 2007 we saw a low in sugar at 986 and on June 10 2008 we saw a low of 1090. Then we saw sugar run up in 2007 to 1117 on July 19. Then again in 2008 to 1435 on July 3. We may see one more push to the upside in 2008 before the drop. From July 23 2007 to mid August we saw sugar in a down trend. Actual 13% drop.Will this year be the same or will the USDA report last week prove that the bulls have taken over.

I am looking for a quick drop to the 39 day moving average at 1416 for March and 1281 for October. If sugar does not make it that far we will at least see a drop back down to support one at the 1450 level for March and 1325 level for October.

My short-term option trade would be to buy the October 1300 put for 50 points or $560.00. In utilizing our money management we would exit this position on the loss side if the option traded for 30% less than what we paid. Which would be if it traded at $392.00 or 35 points. If multiple positions were entered our exit to the profit side would if October sugar traded at first level of support 1325 and then again at the 39 day moving average.

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