RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

Softs

Sugar Spikes. Funds Forces Into Long Positions?

Posted 11/29/2018 10:33AM CT | Joe Nikruto

This week’s comment finds March sugar spiking higher on what wire services have been calling short-covering. Strength in the Brazilian Real and energy markets finding their footing probably aren’t hurting either. So far, the March contract has been unable to surmount the 13.20 level.  Should the market close over this level, commodity trading funds will be forced to enter on the long side. This could be the fuel the market needs to test the 14.00 level. End of year trading can often take place in a lower volume environment due to the holidays, and it doesn’t take much imagination to see “short-covering” taking March sugar futures to recent highs. On the fundamental side, we are starting to see dueling sugar researcher/commentators. A recently released report from a commodity research concern, highlights the emerging discussion about production from India staying near 34 million tonnes. This morning, Hightower group mentions that most analysts have India coming in closer to 32 million tonnes or lower. 

Watch for production estimate revisions in the coming weeks. Indications that production will be higher than the banks and commodity trading concerns have reported will make it difficult for prices to hold above 12.00.  For now, it doesn’t make any sense to fight the chart. The two day spike in March sugar futures has taken the market from 12.36 to 13.21. That is a sizeable move that must be respected. Funds could be in the driver’s seat being pushed up the hill to a cliff. Nimble, short-term traders with the tolerance for the risk can hop aboard for a ride up to 14.00. Recent swing low, 12.33, would be a level traders could use to manage risk. Ultimately, if we see production start to come in over estimates sugar is headed lower. This time of year makes guessing at fundamentals that haven’t happened yet more difficult that it normally is. “Follow the lines on the chart!” a wise man says to me from time to time. Certainly, sage advice. So many great trading opportunities occur in December.   I would only add that having an exit plan or a stop in place is always a great idea. Just in case we are not currently correct.

Sugar Mar ’19 Daily Chart

Sugar Mar '19 Daily Chart

800-453-4494312-373-5385Series 3 Licensed

Joe Nikruto

Senior Market Strategist
Joe Nikruto attended Indiana State University and DePaul University in Chicago with a major concentration in economics. "It was during college that I got a job as a runner at the Chicago Board of Trade. I was immediately hooked," he says.He adds that he also enjoys futures trading because anyone can do it. "Your success depends on how you handle the risk and how much work you are willing to put in. You don't need a big-time Wall Street connection, or a degree from an Ivy League school to get started. Your success largely depends on you and what you put into it." In 1992, he started as a runner and back office clerk for a very large futures commission merchant (FCM). He moved up to pit clerk, then research associate working on the trading floors directly for a grain and livestock concern based in Memphis. He spent time on various trading desks for a large retail FCM and then became Series 3 registered in 1997. He also helped develop an online trading platform and consulted on development and trading of mechanical trading systems. He has always worked to assist his clients with all types of trading-from option strategies and hedging to complicated mechanical trading systems. His advisory background includes Floyd Upperman, McMaster, Walter Bressert, Ken Roberts, Tech Guru, Hightower, Helms and Barry Rosen. As for his involvement with RJO, Nikruto says, "R.J. O'Brien has been in operation for more than 100 years. That is a century of supporting customers. You have to be doing something right for folks who use futures to choose to do business with you for that long."
Read More