RJO FuturesCast

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Softs

Sugar Weak in the Face of Bullish Fundamentals

Posted 11/15/2018 8:24AM CTJoe Nikruto

This week’s comment finds the March sugar futures fully into an area of support, 12.55, a previous high from the middle of September. Commodity trading funds are getting stopped out, again, of long positions put on in the beginning of October. The fundamental narrative is one of coming reduction in supply, and it seems the wire services are feeding that narrative daily. Yet, the March contract has come down well off the highs. In fact, we find the March contract at what appears to be a tipping point.  The 12.55 we mentioned above, should it not hold, could lead the market to find support near 12.00 and 11.50.  The commercial trader had been selling into the rally.  Funds who were lightly long, by sugar standards, are being pushed out of those long trades. Trading in March sugar futures below 12.00 will find them entering new short trades.  Sugar seems to have held up well considering the meltdown in crude oil and gasoline.

If the market believes that the supply of sugar will be reduced in the coming year, we should see it hold here near the 50-day moving average, 12.55. Otherwise, the adage, ‘funds don’t stay flat’ could be in play. If the funds lean into the March contract, 11.50 is in the cards. Traders with tolerance for the risk could use short futures with risk management above the 18-day moving average, 13.28. For traders looking to reduce but not eliminate the risk, put options would be a good way to position for lower prices.

Sugar Mar ’19 Daily Chart

Sugar Mar '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."