Just over a year ago, sugar was trading near 19¢ per pound, a 25-year high. “The high prices encouraged expanded output and the weather improved tremendously in several of the key areas where their production previously had been hurt,” says Judith Ganes-Chase, president of J. Ganes Consulting LLC. That along with higher prices causing buyers to slow purchasing resulted in a vast oversupply. “People placed too much importance on the link between sugar and ethanol. Production geared up much more then the demand or capacity for it,” Ganes-Chase says. And prices are still headed lower based on the expectation of another surplus year. She says support is at 8¢ per pound, and resistance is at 10¢ with more action on the bottom of that range. “We might not see 9.5¢, much less 10¢.”
To make matters worse, Brazil is in its harvest season. “You just want to short this market,” says Boyd Cruel, senior softs analyst at Alaron. “It’s been an escalator down.” He notes that the July contract bounced off 8.99¢ and has been consolidating. Cruel says if the July contract hits 9.50¢, sugar might see some buying and short covering. “The cash market could pick up soon and help put in a bottom.”
He sees resistance at 10¢ and support at 8.99¢. The 8.45¢-8.50¢ range represents the 61.8% Fibonacci retracement level. Cruel says sugar could reverse if crude oil spikes above the mid $70s per barrel. “Then sugar should be in line with ethanol demand.”
