Three years ago, when the sweet commodity hit rock bottom, a decline in production caused the volatile commodity to take off to the upside, reaching a peak at 23.90 cents in October 2016. The fundamental equation for sugar shifted from a glut to a deficit which caused the price to more than double in value over a fourteen month period. However, at almost 24 cents per pound, the sweet commodity moved back into a condition of oversupply as free market producers of sugar stepped up output in response to the higher price. The commodity cycle in sugar reached the bottom end of its range in August 2015 and the top in October 2016. In August 2018, the price of sugar is back at the low end of its pricing cycle. This week, sugar did something it has not done in over three decades, it violated its pattern of high lows as the price fell below the 2015 low and the ten cents per pound level on the active month ICE sugar futures contract.
A decline below critical support at 10.13 cents
On August 20, the price of nearby October sugar futures traded to a low of 9.98 cents per pound, and on August 21 the low was at 9.99 cents.
As the daily chart of October ICE sugar futures highlights, the price dropped to a new low this week. Open interest at 1.056 million contracts on August 20 was at a new record high. Rising open interest and falling prices tend to be a validation of a bearish trend in a futures market, but it also tells us that trend following speculators are holding short positions in the sugar futures market. Both the slow stochastic, a momentum indicator, and the relative strength indicator, are in deeply oversold territory. This week, the sugar futures market fell below its level of critical support.
SUMMARY
A decline below critical support at 10.13 cents. Oversupply from Brazil and India. The falling Brazilian real pushes sugar lower. Production should begin to slow. Short-term pain for long-term gain.
Source:seekingalpha.com
Source:seekingalpha.com
