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Sugar Escaping Recent Range or Large Spec Pain on Tap

Posted 11/29/2017 2:35PM CT | Joe Nikruto

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

Sugar Mar '18 Daily Chart

Joe Nikruto

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."