RJO FuturesCast

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Softs

Sugar Set to Rally, but Watch 12.70 in the May Contract

Posted 03/14/2019 7:33AM CTJoe Nikruto

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

Sugar May '19 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."