Raw sugar futures posted large advances for two straight sessions, adding over 4% to their value across Tuesday and Wednesday as traders adjusted their positions ahead of year-end.
Short-term technical indicators suggest buying could continue through the week, but a longer term technical look shows sugar’s price momentum should be neutral. On Wednesday, raw sugar closed up 2.8% at 19.04 cents per lb. The commodity has experienced a healthy rebound since touching a low of 17.84 cents on Dec.15. Prices are still below their early October peak of 23.90.
Technical buying is dominating the market right now while Brazilian 2016-17 crushing winds down. Speculative investors are covering their short positions before year-end. Raw sugar is on track to finish the year up over 25% even though the commodity has pulled back since October. The retreat followed expectations for an improving supply in the 2017/2018 season, which caused some funds to liquidate their long positions. The sugar market’s 2016 rally has been largely on the back of large speculator bids for the commodity, which in turn are contributing to the recent price volatility. Open interest in sugar peaked this July, bounced around a bit, and has trended slightly lower since September.
While sugar production has recovered since droughts ravaged crops a few years ago, higher consumption of sugar has supported prices. The rally in prices has in turn dented forward looking demand forecasts with concerns that China would switch to more affordable high fructose corn syrup as a sweetening alternative. This could be tempered by an increase in demand for sugar to be converted to ethanol if higher oil prices result from the OPEC/non-OPEC production cut agreement.