This week’s comment finds the March sugar contract retreating. Trade houses along with large national commodity concerns are jawboning the market lower and with energy prices under pressure sugar has been unable to hold above recently established highs. Talk of global surplus has once again been hoisted as the overall theme the market has to contend with. This while China has quietly been increasing purchases and Brazil moves more cane to ethanol instead of sugar. There is no doubt that the anticipated surplus looms large. But with global growth on a “synchronized” upswing and China buying dips there is an argument that the sugar market is auctioning higher to escape what has been equilibrium in the 13.50 to 15.50 range. Fundamentals, as we see them in the wire services, are not overwhelmingly bullish. For the last 6 weeks the chart has been climbing higher, forcing large speculative traders out of short positions and in some case into longs. Price levels have been breached to the upside week after week taking the large spec community as a whole to a near flat position as reported by Commitment of Traders report. This places the sugar market at a pivotal point as funds do not typically stay flat. The commodity trading funds can often experience losses when price movement forces them to exit or take positions only to have the market continue in the direction it was traveling previously. In this case specifically the sugar market appears poised to show whether recent price strength has been related to short covering alone or there is an underlying fundamental reason for sugar to trade higher. If the funds continue to build long positions and price stalls that could indicate that the market is having trouble finding a new, higher trading range.
Sugar March ‘18 Daily Chart