Sugar: Fundamentals in Focus While Commodity Funds Punished

December 8, 2017 11:06AM CST

This week’s comment finds March sugar under pressure.  The last four trading sessions have seen the March contract trade from 15.15 to a current price of 14.15.  While only 100 points worth of price action the timing and technical ground lost make this move potentially significant for long term price implications.  The recent rally took March sugar right up to 15.50 and had moved commodity trading funds to the long side of the ledger reversing short positions that had been held since early summer.  This caused many analysts including myself to consider the possibility the surplus forecasted for this year, was already built into the price.  Many forecasters and trading houses point to anticipated surplus of 6 million tonnes or more for 2018 but much less so in 2019. It may be the case that, according to a large commodity trading bank, there could be “a muted supply-side response, given the level of protectionism in areas like the European Union, Pakistan, China and India.”  What does that mean?  Sugar producers who are supported by governments won’t immediately adjust production even though in some instances the price received at market is less than the cost of production.  If this is the case surpluses could be higher than currently thought for 2019. Fundamental guesses aside, the chart below displays all the evidence commodity trading funds will need to trim recently added long positions.  It could be the case that they have even been forced to add short positions. Volume in the last 3 trading days has been robust but open interest has changed little. With outside markets like crude and gasoline bouncing back from their own recent slide sugar continues to retreat. Technically March sugar is oversold but it is difficult to see where this drop may slow. 13.70 and 13.60, levels seen in September and October appear to be the next stop.

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Sugar Mar '18 Daily Chart


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