Fundamental picture shifts and March sugar futures go on a tear

January 4, 2017 3:35PM CST

What a difference 6 trading days has made in March sugar.  6 relentlessly rapid, rallying days have seen the March sugar futures contract go from near 18.00 all the way up and over the 50 day moving average, 20.20, to near 21.00, well into overbought territory.  Technicians not stopped into new positions on the way up are now waiting for a pull back to the shorter term moving averages, 19.07 and 18.90, the 10 and 18-day moving averages respectively.  With over 70k contracts traded and only a 3k contract change in open interest the March contract is undergoing a wholesale change in ownership.  Commercial participants who have been buyers on the break from the highs in September are now handing positions off to the Fund trader.  The fund trader category shed almost 200k contracts on the move lower from the September highs and is now beginning to add them back to the long side of the ledger, quickly.  Many of the large commercially connected banks and industry groups were recently trumpeting ideas that the sugar market could alleviate deficit conditions in 2017 and move to surplus in 2018.  Recent reports show India reducing their mill count and South American production being called into question.  This new news combined with old, but continuing news of Asian consumption levels outstripping domestic production has changed the fundamental tenor of the sugar market.  The violent change in the technical picture makes it difficult to mount any opposing market view from anywhere but the safety of the sidelines.  I will be waiting for the next COT report to shed some light on how many contracts the Funds have added back to their long position.  It could be that some of this rally is new money, either Index fund or traditional speculative trader, looking to gain exposure to an uptick in inflation which could result in a rally in commodities.  Sugar has been one of the markets that these participants have historically used in their basket to get this exposure.  Check back on Friday to see if the COT has given us any clues.  In the meantime, if a 6 day move higher to the 50% retracement of last quarter’s drop, 20.96, doesn’t give you vertigo, by all means get long.  21.16 and 22.60 are price levels where the funds will extend their buying and shorter term traders may look to take the other side of those trades helping March sugar futures work off the overbought technical condition we currently see.

 

Sugar Daily

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