Sugar Carves Out New Low to Set Stage for Lower Range

March 7, 2018 3:15PM CST

This week’s comment finds the May sugar futures carving out new lows for the move in convincing fashion. After the move to new lows last week, the May contract reached 12.84.  The immediate way the market rallied back to a high of 13.80 suggested there was an argument for a bottoming sugar market.  A quick look at the chart below shows that argument has been weakened to say the least. May sugar closed at 12.82 and traded as low at 12.76 effectively putting a lid on any talk of a market bottom for now. Huge volume, over 100k contracts, and new lows for the move can be countered by pointing out the massive fund short position and oversold technicals but not really. Right now, the chart is telling us all we need to know. The global over-supply situation is forcing the market to find a new, lower equilibrium price.  How far down is that price? How much has sugar been held up by crude oil strength and long-term investment/inflation hedge ideas?  The sugar markets 13.00 to 15.00 range for the last year has not been enough to discourage production.  For many traders it would be tempting to try and catch this falling knife.  A short covering bounce could put the market back near 14.00. I just can’t see what could inspire the funds to cover their short positions at this time. 

Sugar May '18 Daily Chart

sugar_may18_daily_chart

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