By NS Futures

The technical action has been weak, and the market continues to come under pressure from long liquidation selling by fund traders. It will be important for sugar to rally strongly with the outside market support being seen today. Small speculators (non-reportable traders) continue to add to their net long position, and the market remains somewhat overbought in spite of trading near the low end of the 3 1/2 month trading range. While the technical action is weak, sugar seems to have the fundamental setup to see higher prices ahead, as world stocks continue to tighten for the 2009/10 season. India sugar stocks for the start of the season in October were at just 2.5 million tonnes excluding imports. This is down from 10 million tonnes last year, according to the Indian Farm Ministry. The Ministry believes that sugar production last year was just 14.7 million tonnes, down 44% from the previous season. On top of potential demand from India over the near term, the sugar trade alos sees increased interest from Pakistan, as that country has so far avoided much import activity. Traders see a shortfall of 1.0-1.5 million tonnes and expect buying of near 500,000 tonnes of white sugar in December. In addition, private mills want to begin importing nearly 500,000 tonnes of raw sugar. March sugar closed 27 lower on the session on Friday and down 25 for the week. A strong rally in the US dollar helped pressure the market early, and while markets like gold, energies, grains and cocoa saw solid recoveries to higher on the day, sugar remained under pressure and closed lower. The close was the lowest since November 10th, as talk of plenty of short term supply and a lack news of new buying in the cash market kept futures under pressure after the surge higher last Wednesday. The USDA pegged ending stocks last week at 26 million tonnes, down 5.2 million from the May forecast and down from 27.57 million the previous year and 39.77 million tonnes for the 2007/08 season. This puts the world stocks/usage ratio at 16.9%, down from 17.8% last year and 26.1% the year before that. Traders had believed the drawdown in stocks was higher than this, and there is a general sense that there will be a significant surplus in production for the 2010/11 season.