Sugar Spikes. Funds Forces Into Long Positions?

November 29, 2018 10:33AM CST

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

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.