There’s little doubt that the sugar futures market has been dominated by the size of this year’s crop both here and abroad. Global imports to the U.S. have grown as well as our cross border trade with Mexico. Meanwhile, our own sugar crop will be one of the best on record. As a result of the bearish supply situation, we’ve seen the sugar market trend steadily lower since mid-October. The market has now reached its lowest prices since June of 2010 and the commercial traders seem confident in their analysis that this is about as cheap as the market is going to get.
The commercial trader category in the Commitment of Trader reports is made up of both sugar producers and end line sugar consumers. End line commercial sugar purchases have surged over the last two months. Commercial users of sugar have been net buyers in each of the last nine weeks and have more than tripled their position since late November. You can see their actions on this chart. Clearly, they believe it is in their corporate best interests to lock in their future sugar supply needs at these prices.
Our short term swing indicator picked up the buy signal on Thursday but, it was Friday’s trade that will really help turn the market higher. Friday’s rally took prices to their highest level in three weeks stopping out lots of trend followers on the way. Given the market’s pronounced position imbalance and the commercial traders’ view on the fundamental value at these prices, I expect this market to pop significantly as it forces more traders out of their short positions and return the market to its recent value area near $.17 per pound.
