This week’s comment finds sugar contracts, both May and July, chopping higher into breakout territory. With sugar camped out squarely in the technical middle ground of the range established in late Feb and early March it seems like a move in either direction swings the chart picture from bullish one day and to bearish the next. Fundamentally, today’s Hightower comment highlights what I believe to be the dominant fundamental at this moment. RBOB futures continue to climb. Fuel prices in Brazil provide favorable margin for processors converting cane to ethanol. This conversion to fuel of cane that would otherwise be turned into sugar, according to Hightower, can result in a sugar market deficit for 2019/2020.
I continue to have doubts and will be watching the numbers closely but also don’t see the merit in fighting the chart. The commodity trading funds hold a sizeable short position in sugar, much like corn, and it isn’t going to take much in the way of a technical move to get them to cover that short position. An upside violation of the 13.10 level in May or 13.28 in July, a mere 30 points from where the market is now will cause speculative funds to begin to cover short positions. Is there fundamental justification for a move higher? That remains to be seen. Point is, there is enough kindling here for a fire. The July contract has rallied above the short and intermediate- term moving averages. There is resistance at 13.03 and participants are switching out of May contracts into July. With so much of the trade activity being rolling of contracts it is difficult to assign much directional weight to what I see on the chart. Be nimble. There are moves to catch for traders with a plan. It just doesn’t make sense to get locked into a position here.
Sugar Jul ’19 Daily Chart
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