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Better-than-expected production numbers from sugar cane producers has both sugar prices and the super sweet sugar exchange traded note (ETN) falling off its sugar high. The trend has taken a turn for the worse in kind.

As the diminished demand for Brazilian sugar cane harvest triggered selling, sugar prices have fallen 7.1% to a nine-month low, reports Holly Henschen for The Wall Street Journal. On Tuesday, nearby May world raw sugar fell 1.24 cents to 16.57 cents a pound on the ICE Futures U.S. exchange after reaching a low of 16.40 cents. You can see the sharp reversal in the chart below:

  • iPath Dow Jones AIG Sugar TR Sub-Index ETN (NYSEARCA:SGG)

Prices previously surged on expectations of lower output for the 2009-10 crop from the world’s top producer and exporter, Brazil, and the second leading producer and top consumer, India. When Brazil and India’s output turned out better-than-expected, sugar futures plummeted. The Brazilian Sugarcane Industry Association estimates sugar cane output may rise 10% this season to more than 580 million metric tons. If that happens, prices could fall even further.

Furthermore, beverage manufacturers and confectioners were loath to pay such exorbitant sugar prices and the lack of demand also drove prices down.

Sterling Smith, market analyst at Country Hedging in St. Paul, remarks that “at the moment, the market is coming off of its sugar high pretty badly. Today’s big blowout drop will probably beget more selling.” May sugar could trade down to 15 cents to 16 cents a pound before the bearish trend flips, adds Smith.

Sugar’s sharp reversal is a reminder to have a strategy, because no matter how strong or long the trend hangs around, sooner or later it’s bound to end. We use the 200-day moving average to determine when we’re in and when we’re out. When a position is above its 200-day, it’s a buy signal. When it drops below or 8% off the recent high, it’s a sell signal.

Employing a stop loss will eliminate the need to ask yourself, “Is it time to sell?” Have that time set beforehand, and your emotions won’t do the talking when you press that button.

Max Chen contributed to this article.

Disclosure: None

Source: iPath Sugar ETN: From Sweet to Bitter