Technical Turn Emboldens Sidelined Sugar Bulls – Inflation Hedge?

May 2, 2018 2:30PM CDT

This week’s comment finds July sugar futures working to carve out a near-term bottom.  The fundamental news flow continues to weigh on price.  Top sugar producing countries show no signs of taking their foot off the gas. Which leads us to a comment on this morning's comment from Hightower where they mention Brazil has been utilizing cane for ethanol vs. sugar likely due to high prices being commanded for gasoline.  This is not a bearish development for sugar but could be short lived depending on oil producing countries ability to maintain discipline regarding oil supply.  Also, sugar may be getting pulled higher by the action in other soft commodities. Cocoa has posted a dramatic rally and even coffee is starting to perk up.  Now sugar futures, another market like coffee that the financial world has viewed as doormat for quite a while, is also starting to heat up. The idea that inflation is on the rise is getting traction across the game table. It could well be that traders are beginning to move into commodities that have historically been viewed as hedges against inflation. Technically, sugar is running up into the 18-day moving average.  Should the July futures contract manage to close above the 18-day, 11.82, more short covering could occur.   Today’s volume was not small and it will be interesting to see what impact this move will have on open interest. Trend followers and their rather large short positions are out of the way, for now, with stops above 12.62 and 12.97.  Both the 18-day and 50-day moving averages loom large overhead. Sugar seems undervalued and subject to short covering but until we see closes over those moving averages the trend is down.

Sugar Jul '18 Daily Chart

Sugar Jul '18 Daily Chart

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