Too Much Too Soon?
Today’s Spotlight Market
Sugar futures will have normal trading hours on December 24, although the other ?softs? products will see an early close on Thursday. All U.S. markets will be closed on Friday, December 25 in observance of the Christmas Holiday. Coffee, Sugar, Cocoa and Cotton traders can sleep-in on Monday, December 28, as these markets will have a late opening of 7 am Central Time in observance of Boxing Day celebrated in the U.K.
Fundamentals
Today?s headline could sum-up the thoughts of Sugar traders, who have seen the front-month futures rally from just above 10 cents per pound to just over 15 cents as of this writing. Much of the gains were tied to the Sugar market moving to a global supply deficit following several years of a worldwide surplus. Current forecasts as to the potential size of the deficit vary by as much as 6 million metric tons, but the overall consensus is that we will see a supply deficit for the 2015/16 season. However, before one becomes too bullish on Sugar prices, we should note the market still faces some significant headwinds that may act as a lid on further price gains.
First, we have the prospects that the U.S. Dollar will continue its gains against the so-called ?commodity currencies? which have faltered due to the overall slump in commodity prices. For the Sugar market, the value of the Brazilian Real is a front and center concern of traders, as weakness in currency of the world?s leading Sugar producing nation would encourage producers to increase overseas sales to take advantage of the weakened Real. There are also concerns on what the demand picture will look like in 2016, especially with prices up sharply from its recent lows and continued uncertainty regarding the overall strength in the global economy. The size of Chinese Sugar imports will be particularly scrutinized by analysts, as there is talk that China may reduce its import totals in 2016 — but to what extent remains uncertain.
Speculators are also starting to lighten-up on their net-long positions as prices hover around the 15-cent level basis the March futures, with the most recent Commitment of Traders report showing combined non-commercial and non-reportable traders reducing their net-long holdings by a combined 30,800 contracts during the reporting period ending December 15. So it appears that the market will need a new round of bullish inputs in order to convince market participants that the Sugar bull move is alive and well as we move into 2016.??? ?
Technical Notes? -? View Today’s Chart
Looking at the weekly continuation chart for Sugar futures, we notice that the major downtrend line drawn from the major high made back in early 2011 definitely has been broken, although it is still too early to conclude if a bullish trend has begun or we are in a consolidation phase near recent lows. There remain several key resistance areas including the 200-day moving average, which is currently near the 16.80 price level, as well as the October 2013 high of 19.50 that must be challenged in order to help confirm that a major low has been formed. The 14-week RSI has recently retraced from near overbought levels near 70 to a more moderately supportive 60.99. 13.63 is seen as the near-term support level for the front-month futures, with near-term resistance seen at 15.58.??
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