This week’s comment finds sugar attempting to consolidate. The chart below shows a little something for everyone. Clearly, yet another failure at the upper end of the recent range. Downside breakout brought to a halt. Commodity trading funds are short and likely getting shorter. Index funds hold a big chunk of open interest on the long side and aren’t going anywhere anytime soon. Fundamentally, the trade, and the trade related press coverage, continues to focus on declining supply. With prices for unleaded gasoline marching higher processors in Brazil are incentivized to turn sugar cane into ethanol.
Technically, if the May sugar futures contract is rolling over traders could be patient and wait for a test of the 18-day moving average, currently 12.70. Failure to post closes and hold above that level could signal this market is gathering for a move below 11.50 and lower. Hightower, in a comment this morning, highlighted the start of the new harvest begin in April. If word of increasing supply begins to filter out I continue to believe sugar will have to find a lower equilibrium price.
Aggressive futures traders could look at the long side in anticipation of a run into the 18-day. More patient traders can wait to see if the market fails at the 18-day and explore the short side ultimately looking for a move to 11.50.
Sugar May ’19 Daily Chart