Sugar Slides as Supply Concerns Ease
Fundamentals
Sugar prices continue to tumble from recent highs, on indications that India may become an exporter of the sweetener once again. The upcoming crop seems to be very healthy at the moment, and is estimated to yield 27% more than last crop year. Various projections put the export total in the neighborhood of 1 million metric tons. Brazil is also expected to have a bountiful harvest, which when coupled with the positive Indian crop projections suggests the world may be reversing the trend of evaporating supplies. The Russian wildfires could, however, provide some support for prices. Many analysts' projections factored in production of about 4 million tons of Russian Sugar. This number is now seen coming in around 3.5 million tons. Even with the lower Russian production, the world is expected to see more than ample Sugar supplies, which could make further gains in price difficult to come by.
Trading Ideas
The fundamental outlook for the Sugar market has become much less supportive for prices, but Russia remains a wildcard. Technically, it seems as though the recent uptrend is ready to turn lower, but the chart does not confirm this yet. Some traders may wish to wait and see how the market behaves around the 18.00 level. If we see follow-through selling, some traders may wish to consider entering into a short futures contract, with a downside objective of 16.10 and a stop at 18.40.
Technicals
Turning to the chart, we see the price of October Sugar closing below previous resistance/new support at 18.02. Sugar traders may want to pay close attention to how prices behave for the next few days, as price action could help determine the near-term direction of the market. Follow-through selling could be an indication that prices may come down to test 17.00, or even 16.00. A reversal back above 18.02 could be a sign that the market may stabilize around current levels and hints at a resumption of the uptrend. The moving averages are giving mixed signals. The October contract closed below the 20-day moving average, suggesting that a near-term top may be in place, while the upward crossover of the 50 and 100-day averages can be seen as bullish.
Robert Kurzatkowski, Trading Specialist
