Sugar Prices Slump to 34-Month Lows
???? Today’s Spotlight Market
A look at the Commitment of Traders report shows a minor divergence between large and small speculative traders. As of May 7th, non-commercial traders (large speculators) were holding a net-long position including futures and options of 2,452 contracts. Non-reportable traders (small speculators) were net-short 17,755 contracts.
What may be more interesting is the position of commercial traders. Here, commercials are net-long 15,303 contracts; however, this long position was lowered by over 11,000 contracts this week. This corresponded to a minor rally during this time period, and it will be interesting to see how these market participants adjusted their positions once the downward price move resumed this past week.
???? Fundamentals
Taking some poetic liberties from a popular Frank Sinatra song lyric, “They’ve got an awful lot of Sugar in Brazil” pretty accurately describes one of the major reasons why world raw Sugar futures prices are trading at 34-month lows as of this writing.
Reports from Unica, Brazil’s Sugar Cane Industry Association, show Brazil’s Sugarcane harvest totals tripled in April from year ago levels, as ideal weather quickened the pace of harvest.
A record Brazilian Sugarcane harvest comes at a time when analysts are forecasting a large global Sugar surplus of around 8.5 million metric tons this marketing year. However, a report from the International Sugar Organization earlier this week looks to raise the potential surplus to nearly 10 million metric tons!
Although a large portion of the Brazilian cane crop will go towards ethanol production, it is expected that just over 40% of this year’s record crop will still be used for food usage, which will not be enough of a reduction to make a significant dent in global Sugar inventories.
???? Technical Notes
Looking at the daily chart for July Sugar, we notice prices continuing to grind lower, as psychological support at 17.00 failed to halt the downward pressure on prices. Despite a move to 34-month lows, the 14-day RSI has remained above oversold levels, with a current reading of 32.88.
Traders looking for a bottom in price will note that trading volume has fallen the past 10 days or so while prices were making new lows. This could be a sign that new bears are not entering the market at current price levels, and a short-covering rally may not be out of the question in the coming sessions. 16.00 is seen as the next chart support level for July Sugar, with resistance found at the 20-day moving average, currently near the 17.45 price area.
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