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Will Sugar Challenge the 2023 High in 2024?
World sugar futures on the Intercontinental Exchange fell to 9.05 cents per pound in April 2020, the lowest price since June 2007, as the global pandemic gripped markets across all asset classes. By November 2023, the price more than tripled, reaching the highest level since 2011 at 28.14 cents per pound.
ICE sugar futures closed 2023 with a 2.69% gain at 20.58 cents per pound. On January 19, the price was higher at over 23.57 cents. While sugar corrected from the November 2023 high, the price held the 20 cents level on the downside, which is critical technical support.
World sugar is a volatile commodity
ICE world sugar futures have a long history of boom-and-bust price action.
The long-term ICE sugar futures chart from 1970 shows the significant explosive and implosive price action in sugar futures for over half a century. At over 35%, world sugar’s historical volatility reflects its penchant for price volatility.
Brazil is the leading producer and exporter
Brazil has the most favorable tropical climate, supporting sugarcane production.
Source: Statista
As the chart highlights, Brazil leads the world in sugar output, with India the second-top producer.
Source: worldstopexports.com
Brazil is also the leading sugar exporter, with nearly twice the exports as second-place India.
Sugar’s relationship with energy in Brazil
The United States leads the world in corn production and exports. In the U.S., corn is the primary ingredient in ethanol production. Ethanol mandates require a blend with gasoline for automobiles and other vehicle fuels.
In Brazil, sugar is the ingredient in biofuel, causing sugar prices to move higher and lower with crude oil and gasoline prices. As crude oil prices increase, domestic Brazilian sugar demand grows, limiting exports to consumers worldwide. Therefore, sugar can correlate with crude oil.
The long-term bullish trend since 2020 remains intact
When the global pandemic gripped markets across all asset classes in April 2020, NYMEX crude oil prices fell into negative territory for the first time. Brent North Sea crude oil fell to $16 per barrel, the lowest price of this century. World sugar #11 futures fell to a multiyear low in April 2020.
The twenty-year chart shows the decline to 9.05 cents per pound, the lowest level since June 2007.
Since April 2020, world sugar #11 futures have made higher lows and higher highs, reaching 28.14 cents per pound in November 2023, the highest price since October 2011. Sugar rallied from a thirteen-year low in 2020 to an eleven-year high in 2023.
Sugar futures ran out of upside steam in November 2023, falling to 20.03 cents in December 2023, but the sweet commodity held above the 20 cents level. On January 19, the price was just above 23.50 cents as the sugar market recovered. The bullish trend that began in 2020 remains intact in early 2024.
CANE tracks world sugar prices
The most direct route for a risk position in the free-market world sugar market is the highly liquid futures and futures options on the Intercontinental Exchange (ICE). The Teucrium Sugar ETF (CANE) tracks the price of ICE futures higher and lower. At $13.55 per share on January 19, CANE had over $17.3 million in assets under management. CANE trades an average of 40,055 shares daily and charges a 0.22% management fee.
World sugar futures fell 28.8% from 28.14 to 20.03 cents per share from November through December 2023. The price has recovered 17.7% to 23.57 cents on January 19, 2024.
The chart shows CANE fell 22.6% from $15.51 to $12.01 before recovering 12.8% to $13.55 over the same period. Since CANE owns a portfolio of three actively traded world sugar #11 contracts, excluding the nearby contract to mitigate roll risks. Since the most volatility tends to occur in the nearby contract that attracts speculative activity, CANE tends to underperform the continuous contract on the upside and outperform on the downside.
Sugar’s bullish trend that started in 2020 remains intact in early 2024. While the first upside target is at the November 2023 28.14 high, the 2011 31.85 and 36.08 cents per pound technical resistance levels could come into play later this year if supply and demand fundamentals move into a deficit. Higher crude oil prices will likely continue to support gains in the sweet commodity.
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On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
