Sugar Weak in the Face of Bullish Fundamentals

November 15, 2018 8:24AM CST

This week’s comment finds the March sugar futures fully into an area of support, 12.55, a previous high from the middle of September. Commodity trading funds are getting stopped out, again, of long positions put on in the beginning of October. The fundamental narrative is one of coming reduction in supply, and it seems the wire services are feeding that narrative daily. Yet, the March contract has come down well off the highs. In fact, we find the March contract at what appears to be a tipping point.  The 12.55 we mentioned above, should it not hold, could lead the market to find support near 12.00 and 11.50.  The commercial trader had been selling into the rally.  Funds who were lightly long, by sugar standards, are being pushed out of those long trades. Trading in March sugar futures below 12.00 will find them entering new short trades.  Sugar seems to have held up well considering the meltdown in crude oil and gasoline.

If the market believes that the supply of sugar will be reduced in the coming year, we should see it hold here near the 50-day moving average, 12.55. Otherwise, the adage, ‘funds don’t stay flat’ could be in play. If the funds lean into the March contract, 11.50 is in the cards. Traders with tolerance for the risk could use short futures with risk management above the 18-day moving average, 13.28. For traders looking to reduce but not eliminate the risk, put options would be a good way to position for lower prices.

Sugar Mar '19 Daily Chart

Sugar Mar '19 Daily Chart

 

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