This week’s comment finds sugar continuing to rally in dramatic fashion. From 12.20 on October 4 to today’s move over 13.70, sugar has been on a one-way ride higher. Wire services have been struggling to find fundamentals to fit to the price action. In the last few weeks, we have heard of currency strength in Brazil, demand for ethanol, and even pestilence in today’s Hightower report. Apparently, white grubs may be impacting the available supply of sugar in India calling into question how much they can export in the coming months. 

The last COT report found commodity trading funds still short 30k contracts plus. These funds should have been not only stopped out of short positions, but well on the way to being long. Typical trend-followers will only be able to exit long positions on a move below 12.15 and 11.00, which underscores how fast and how far the market has rallied. In the next week or two the stops will catch up with the market and move to higher levels, but if sugar continues to scream higher, it won’t matter much where the stops are underneath. 

Fundamentally, I can’t wrap my head around this rally, short covering should only be able to take this market so far. Luckily, the chart is telling us what we need to know. The trend is up on all but the longest of scales. Traders who are still short should be laboring to establish levels for risk management. Market participants who traffic in overbought/oversold are likely on the edge of their chair waiting for a technical correction that will bring the indicators off the ceiling. The 18-day moving average comes in at 12.30. I wouldn’t be surprised to see a move back to that level in short order. Ultimately, I would like to have short exposure to what I believe will be yet another year of solid production for sugar. But for now, I do not want to fight the tape.

Sugar Mar ’19 Daily Chart