Sugar Sell-off Cools
Fundamentals
Sugar prices have remained relatively steady over the past week, spurred by an uptick in demand on sagging prices. The drop in prices suggests that India may force beverage and confection makers to import the sweetener to increase domestic stocks. While Brazil and India are both expected to sharply increase their supplies in the next crop year, demand from much of the world has remained stout. China may import more Sugar than previously expected due to inclement weather conditions in the country's growing region. In the near-term, supplies do remain fairly tight, but the prospect of large Brazilian and Indian crops could prevent prices from making any material gains. The oversold conditions have also caused traders to take profits on shorts. It is still unclear if the market is trying to find a base here at current levels, or if we are seeing consolidation before prices begin sliding again. The Dollar's recent lack of direction has caused many commodities to either trade range-bound or begin moving on their own merits. In the case of Sugar, almost apocalyptic conditions were priced in, which is why the market had such a sharp drop. Now that prices have come down to more realistic levels, traders will be very sensitive to any changes in the fundamental outlook over the near-term.
Trading Ideas
The fundamental outlook for the Sugar market has become modestly more favorable, but the spurt in demand can be seen as a product of opportunistic buyers rather than something the market can build on. Likewise, the chart shows that the market has stopped the bleeding for the moment, but little else positive could be said at present. Some short-term traders may possibly wish to short the May futures contract on a close below 16.50, with a downside objective of 15.00 and a protective stop at 17.00. The trade risks roughly $560 for a potential profit of $1,680.
Technicals
Turning to the chart, the May Sugar contract has been trading in a very tight range for the past week, forming what appears to be a consolidation pattern on the daily chart. It is still unclear whether this consolidation can be seen as a sign that the market is trying to find a base. The technicals suggest that the May contract may not find significant price support until the market trades down to the 15.00 level. The RSI indicator is showing the market recovering from oversold conditions, which could make the market susceptible to additional selling pressure.
Rob Kurzatkowski, Senior Commodity Analyst
