Believe it or not, sugar has been more volatile than equities in the early stages of 2008, twice posting ranges in excess of 10% of its total value. In early January, sugar began to rally when a Brazilian hedge fund was forced to close short positions, breaking key resistance levels and leading to increased fund buying, says Boyd Cruel, senior softs analyst for Alaron Futures and Options. “Funds are looking at markets that are undervalued. Sugar is one of them.” And with sugar being used for ethanol production, the downside potential is limited, but so is the upside considering the impending Brazilian harvest. In March, Cruel says resistance is between 13¢ and 13.40¢ per lb., and support is between 11.40¢ and 11.60¢, unless funds enter the market.
Fund manager John Di Tomasso calls sugar the most undervalued commodity out there and sees it as the best long-term play in the commodity sector. Some analysts are not as bullish. “When the market was rallying, it was on expectations that producers, specifically India and Brazil, would scale back their output,” says Judith Ganes-Chase. “Then as prices climbed back over 12¢, and looked like they were heading towards 13¢, sugar became attractive again.” She says with increased production and steady consumption there is nothing bullish on the horizon, and even next year’s projected deficit likely would be small. She expects sugar to trade between 11¢ and 13¢ per lb.
