This week’s comment finds the May sugar futures contract hemmed in. Bouncing around in a rather tight range bounded by the 50-day and 18-day moving averages sugar appears, yet again, to be poised for a move. With the May contract trading in a roughly 1.75 range since December it feels like I am being convinced by Lucy to try, just one more time, to kick the football. Feelings aside, sugar has recently rallied above, but failed to hold, the 50-day moving average, 12.73. Price action has eroded below trendlines drawn off both the September and January lows. While currently holding above the 18-day moving average, 12.47, the market looks heavy. 12.33 and 12.08 are swing lows that appear to be within shooting distance.
Fundamentally, this morning’s Hightower comment sums up the situation. Lower Brazilian currency, surplus (yet again) for 2018/2019, talk of supply deficit for 2019/2020 and massive use of sugar cane for ethanol vs sugar in Brazil. That last fact may be what the direction of the sugar market hinges on in the near term. If prices for RBOB gasoline can remain high the ethanol margins in Brazil can support aggressive offtake of sugar can for use in fuel. If energy prices can’t hold, sugar may have difficulty holding here as well. Bottom line, while the jury could be characterized as still out technically, the inability of the May contract to hold above the 50-day moving average is not bullish. Admittedly, it will not take much of a move higher to change the chart picture. But until we see sugar trading above 12.90 the path of least resistance appears to be lower.
Sugar May ’19 Daily Chart
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