Sugar Consolidation - Sweet Horizons Ahead

Summary

• A switch from lower lows to higher lows since late April.
• Low prices lead to less output.
• Higher energy means more domestic demand in Brazil.
• Higher lows since 1985.
• Levels to watch on the upside.

Sugar is a boom and bust market as it has a long history of incredible price volatility. Since 1971, the sweet commodities that now trades on the Intercontinental Exchange as part of the soft commodities sector has been to highs of 66 and lows of 2.29 cents per pound. The wide price variance of the sweet commodity is the reason that it tends to attract many trend-following speculators when it reached highs or lows in its price cycle.

Commodities like sugar tend to move to levels where classic economic theory impacts the price action. Agricultural commodities move to levels on the downside where demand increases, inventories begin to decline and production decreases which cause bottoms and reversals to the upside. Conversely, they trend to prices on the upside where producers increase output, demand declines and inventories build which results in tops and reversals to the downside. The cyclical price behavior in sugar has yielded significant price moves over time. Over past years, sugar traded down to lows of 10.13 cents per pound in August 2015 on the nearby ICE futures contract. That low turned out to be the bottom of the pricing cycle, and sugar moved to highs of 23.90 cents, an increase of over 100% by October 2016. At the highs, sugar reached the top of its pricing cycle. Since then, the price of the soft commodity declined to a low of 10.69 cents this April, and now it is looking like that price was another significant bottom for the sweet commodity that is showing signs that it now wants to probe higher levels over the coming weeks and months.

A switch from lower lows to higher lows since late April

After reaching a high of 23.90 in October 2016, the price of sugar made a series of lower highs

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The author always has positions in commodities markets in futures, options, ETF/ETN products, and commodity equities. These long and short positions tend to change on an intraday basis.