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Technical Turn Emboldens Sidelined Sugar Bulls – Inflation Hedge?

Posted 05/02/2018 2:30PM CT | Joe Nikruto

This week’s comment finds July sugar futures working to carve out a near-term bottom.  The fundamental news flow continues to weigh on price.  Top sugar producing countries show no signs of taking their foot off the gas. Which leads us to a comment on this morning’s comment from Hightower where they mention Brazil has been utilizing cane for ethanol vs. sugar likely due to high prices being commanded for gasoline.  This is not a bearish development for sugar but could be short lived depending on oil producing countries ability to maintain discipline regarding oil supply.  Also, sugar may be getting pulled higher by the action in other soft commodities. Cocoa has posted a dramatic rally and even coffee is starting to perk up.  Now sugar futures, another market like coffee that the financial world has viewed as doormat for quite a while, is also starting to heat up. The idea that inflation is on the rise is getting traction across the game table. It could well be that traders are beginning to move into commodities that have historically been viewed as hedges against inflation. Technically, sugar is running up into the 18-day moving average.  Should the July futures contract manage to close above the 18-day, 11.82, more short covering could occur.   Today’s volume was not small and it will be interesting to see what impact this move will have on open interest. Trend followers and their rather large short positions are out of the way, for now, with stops above 12.62 and 12.97.  Both the 18-day and 50-day moving averages loom large overhead. Sugar seems undervalued and subject to short covering but until we see closes over those moving averages the trend is down.

Sugar Jul ’18 Daily Chart

Sugar Jul '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."