Jenkins Sugar Group Evening Report                                         

Tuesday January 19, 2010

World sugar futures moved to a new 29 year high today – May crested at 29.06 and settled officially at 28.98. Prices held the bulk of the day’s gains – March last traded 133 higher at 28.95 and the back months finished the afternoon from 109 higher in May to 54 higher in July. Following a strong session in London during the US holiday on Monday, #11 futures gapped higher, inciting technical buying which lifted the March from the opening low at 27.90 to 28.25. Despite some backing and filling, the March futures left a gap from 27.83 to 27.87, which seemed to satisfy traders looking for a pull back. After consolidating in a 28.20 to 27.90 range through the morning, prices broke high just prior to noon in New York. March rallied from 28.05 to 29.00 just prior to the official settlement and peaked at 29.06 shortly thereafter. On spread, the march/May widened nicely as prices appreciated. The spread traded from 123 over to 154 over and last traded at 149 over. The May/July traded from 282 over to 328 over and last at 323 over.

Cash-wise, the TCP in Pakistan has announced another buying tender, for February 22^nd covering 50,000 tonnes of whites and have now scheduled a total of 450,000 tonnes of buying tenders spread from February 6^th to February 22^nd. The Chinese Government will release a further 360,000 tonnes of their state reserves into the domestic market on January 21^st to bring total release from this crop to 860,000 tonnes. The initial price at the tender will be 4,000 yuan but the local market is now about 5,450 yuan, having declined 4% on the news. Russian sugar producers are lobbying for the sugar import duty to be reduced for March and April to $50 from the current $140 due to high world sugar prices. The duty is due to decline to $50 for May/July arrival sugars. ISNA in Iran reported they will import 650,000 tonnes of sugar of which 350,000 tonnes will be for industry and the rest used as a strategic stock. Technically, the March gapped above the 10-day average on this morning’s opening and never looked back. The RSI is ever-so-marginally overbought at 67.86. We expect to see additional gains in the coming sessions.

In the NAFTA region: US futures trading was quite active today – the day’s activity had the feel of a “cry for help” or a “signal flare” as March bettered its prior life of contract high by a full cent, touching 41.00 while May (prior contract high of 38.00) rallied from 38.50 to 40.00. The day’s buying was not confined to the nearby positions. September traded as high as 36.50 – more than 12.00 cents premium to the July 2010 #11 futures. September settled at 35.00, 10.69 cents over the July #11, but either differential amounts to a statement that the USDA will increase the US supply not just late, but too late. Or at a minimum, it is a statement that the USDA will continue to maintain US stocks at levels that continually threaten actual physical shortages. Whatever strength the Q3 positions displayed nonetheless paled in comparison to March and May. March traded at 5.50 cents premium to September, while May traded at 3.85 cents premium to July.

As a trader would earn over 1.00 cent’s interest by marketing sugar in March rather than September and would close out any origin or counterparty risk six months earlier by advancing sugar from September to March, picking up 5.50 cents in the bargain, one has to conclude that there is no un-sold/un-hedged supply of any note left for March. And until the USDA increases supply, the same will hold true for the May. Any trader who gambled that the USDA would address this issue in an orderly manner two weeks ago, pre-hedging a 20,000 tonne cargo of to-be-announced quota in the May #16, would be out of pocket 467 points or about $2.1 million tonight.

Regards,

Jenkins Sugar Group, Inc.

(203) 563 6100

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