Looking to the Futures

Bulls Sweeten on Sugar Prices

Key takeaways

  • Coffee Futures Near 7-Year Highs as Options Implied Volatility Spikes

Fundamentals:

Traders are starting to turn their attention to the ‘Softs” markets of late as weather issues and transportation issues have triggered an increase in volatility in this sector.

Today, we will look at the world Sugar futures market where prices are near 5-month highs on a front month continuation chart.

We must look at the Southern Hemisphere, in particular Brazil, to see the effects of weather on Sugar prices, as frost concerns have taken center stage.

Forecasts calling for the potential of near freezing temperatures last week in the Sugar Can growing regions of Southern Brazil were behind the recent price rise.

While the potential frost damage on the Sugar Cane crop are not expected to be as widespread as the frost damage that is affecting Brazil’s Coffee production. The Cane crop has already suffered through abnormally dry conditions this year.

Forecasters were already calling for lower Brazilian Sugar production this year prior to the frost scare, with CONAB expecting 2021-22 Sugar production to fall 5.7% YoY to 38.9 million metric tons.

Globally, the International Sugar Organization (ISO) expects the 2021-22 Sugar market to run a deficit of 2.7 million metric tons.

On the bearish side, traders note that India’s monsoon seasonal rainfall is at near normal levels and Sugar production was running ahead of last year. India is the world’s second largest Sugar producer behind Brazil, so any increases in production will help offset the shortfall out of Brazil.

Analysts are also watching the amount of Ethanol production out of Brazil this year as the amount of Cane production that gets used for fuel production can produce a meaningful shift in the amount of Sugar Cane used for food production.

Technicals:

Looking at the daily chart for October Sugar futures (SBV21), we notice prices pulling back from contract highs with a test of the 10-day moving average (white) in view.

The 14-day RSI has turned lower, breaking below 60 during the recent 2-day selloff.

We do note that the market has been making a series of higher highs and higher lows since late April, which as long as this trend continues, gives Sugar bulls the upper hand.

Near-term chart support is seen at the 10-day moving average, currently near the 17.97 price level, with significant chart support found at the July 13 low of 16.73.

Near-term chart resistance is seen at the contract high of 18.81, with long-term resistance found at 18.94, which was the February 2021 high on the daily continuation chart.

 

Contract Specs:

October 2021 Sugar Futures (SBV21)

 

Trading Calendar:

Construction Spending: 10:00 a.m. ET

ISM Manufacturing Index: 10:00 a.m. ET

Export Inspections 11:00 a.m. ET

Crop Progress: 4:00 p.m. ET

About the author

Mike Zarembski

Senior Manager