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MERRILL LYNCH & CO.
North Tower, 21st Floor, New York, New York
(November 26, 1997) SUGAR: A disappointing Russian beet crop prompted that country to fulfill raw sugar needs earlier than usual. This buying helped prop up sugar prices in recent weeks, but the likelihood of the market sustaining the rise is slim as ready availability of supplies to satisfy these requirements is not a problem.
According to the latest F.O. Licht data world sugar stocks are expected to dip to 44.7 million tonnes this season compared to 47.2 million last season. As a percentage of use stocks would be equal to 36.0% from 38.9% in 1996-97. This is still well above pipeline requirements and surplus stocks should be about 5.8 million tonnes at year end down from 8.6 million last season. The figures are rather deceiving though. Indian surplus stocks are expected to be reduced by 2.6 million of the forecast 2.7 million tonne reduction in global surplus stocks, suggesting that availability elsewhere will be on par with the year prior. Moreover, despite the increased Russian needs, total import demand is expected to fall this season to 35.5 million tonnes from 36.9 million last season. Increased self-sufficiency and ample stocks are the major reasons. This too could dampen market sentiment and make sellers of sugar, particularly whites, have to compete more aggressively for buyers.
The open interest in the market has come off quite a bit from the recent highs, but further liquidation pressure could be seen if the market falters from present levels, which we suspect it might. The trading range for the market is probably best defined between 11-12.50 and we believe the market should rechallenge the lower end of the band if additional physical buying interest does not materialize soon.
(Reprinted by permission. Coypright © 1997 Merrill Lynch, Pierce, Fenner & Smith Incorporated.)
Judith Ganes
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