Bulls in Sugar Look for Hope of a Bottom

August 24, 2018 7:18AM CDT

This week’s comment finds the October sugar futures contract, again, trying to carve out a bottom.  Price action from the previous two sessions has given bulls hope that sugar could be at the beginning of a bottoming process.  With support from energy markets and the thought we could see less surplus in the next year there are ideas the burdensome supply may be priced in.  That was actually the headline from the Hightower group comment Thursday morning – “Already Priced Big Surplus”.  And, it wouldn’t be the first time we have seen the press call for this relentless production to be considered priced in.  It would be easier to get my mind around the idea of a value area for sugar if there wasn’t more surplus sugar on the way.  What we do know is that sugar producers globally have shown very little indication of slowing down.

Fundamentally, there are reasons for a bounce in sugar.  Wire services and commentators have been mentioning them for months. Calls for Brazilian currency strength, continued increased use of sugar for ethanol in Brazil and higher energy prices are all fuel for a move higher. Technically, the size of the managed short fund position is almost as big, at 154k, as it has been all year.  There is still room to run, meaning funds can still be sellers, helping to drive the market lower. But with the size of the position as big as it is, there is possibility of short covering rallies. We attempted to position for a bounce such as this a few weeks ago with inexpensive options but the market did not cooperate instead rolling over and diving to new lows.  This recent two days of positive price action will have bulls and bottom pickers emboldened and pricing out call options.  While the trend is down, really down, one can easily see the lure of using inexpensive options to position for a bounce. It could be especially wise to use options both for scale and sound risk management. The last thing you want to do is try and catch the falling knife with futures and not have stops in place to protect your trading account.

Sugar Oct '18 Daily Chart

Sugar Oct '18 Daily Chart

RJO Futures | 222 South Riverside Plaza, Suite 1200 | Chicago, Illinois 60606 | United States
800.441.1616 | 312.373.5478

The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that RJO Futures believes to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgement at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

Distribution in some jurisdictions may be prohibited or restricted by law. Persons in possession of this communication indirectly should inform themselves about and observe any such prohibition or restrictions. To the extent that you have received this communication indirectly and solicitations are prohibited in your jurisdiction with registration, the market commentary in this communication should not be considered a solicitation.