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Can Sugar Recover?
In a July 16 Barchart article on soft commodities in Q2 and beyond, I noted that sugar #11 futures fell 1.36% over the first six months of 2024. Nearby ICE sugar futures closed Q2 at 20.30 cents per pound. I wrote:
Time will tell if the two laggards become the leaders over the coming months, as their prices are at levels that could offer significant value in the current environment.
At the midpoint of the third quarter, sugar futures have declined and were around the 18.40 cents per pound level. The sugar futures trend since 2020 remains higher, but the price is flirting with a level that could threaten the bullish path of least resistance.
Sugar prices have declined and are near critical technical support
After reaching a 28.14 cents per pound high in November 2023, the highest price since 2011, world sugar #11 futures have made lower highs and lower lows.
The monthly chart shows the correction that took the continuous sugar futures contract to a 17.64 cents per pound low in August 2024. Sugar has bounced back above the 18 cents level. Critical technical support is at the September 2022 17.19 cents low. Nearby October world sugar futures settled at 18.39 per pound on Friday, August 23.
Sugar is food and fuel
Sugar is an ingredient in many of the foods consumed by people worldwide each day. However, sugar is also a critical ingredient in biofuel.
As the chart shows, Brazil is the world’s leading sugarcane-producing country, with 25% of the 2023/2024 global output. While corn is the primary ingredient in U.S. ethanol, Brazil’s ethanol production requires sugar, making the sweet commodity food and fuel.
Cocoa, coffee, and FCOJ futures remain elevated
Sugar is a member of the soft commodities sector, which includes Arabica coffee, cocoa, cotton, and frozen concentrated orange juice, which trade in the futures arena on the Intercontinental Exchange (ICE). While cotton prices have been under pressure, coffee, cocoa, and FCOJ futures prices remain elevated.
The ten-year Arabica coffee futures chart shows that coffee remains at over $2.45 per pound, near a multi-year high.
The chart shows the parabolic rally in cocoa futures that took the price to a record $11,722 per ton peak in April 2024. At over $7,800 per ton, cocoa futures remain in pre-2024 record territory in August 2024.
Frozen concentrated orange juice futures rose to a $5.1465 high in August 2024 and remained above the $5 per pound level on August 23.
Coffee, cocoa, and FCOJ prices are elevated, which could indicate that sugar will hold above the 17.19 critical resistance level and the current price at around 10 cents below the November 2023 high a buying opportunity.
Sugar is the only soft commodity with an ETF product
Coffee, cotton, cocoa, and FCOJ have no ETF or ETN products tracking the prices. The only option for participating in those markets is through the ICE futures and futures options.
The Teucrium Sugar ETF (CANE) is an unleveraged product that tracks a portfolio of three futures contracts for sugar, excluding the nearby contract. Since the most speculative price action tends to be in the nearby contract, CANE tends to underperform nearby sugar futures on the upside and outperform on the downside.
At $11.30 per share, CANE has around $10.216 million in assets under management. CANE trades an average of 21,905 shares daily and charges a 0.22% management fee. The CANE ETF allows participation in the sugar market without venturing into the highly leveraged and margined futures arena.
Levels to watch in sugar- Attractive risk-reward at the current level
At just below 18.40 cents per pound, risk-reward dynamics make a long sugar position attractive.
The three-year chart shows that technical support is at 17.19 cents, while technical resistance has declined to the early July 20.78 high. Sugar futures have made lower highs and lower lows since late 2023, causing resistance to decline.
If the price action in coffee, cocoa, and FCOJ is a guide, sugar futures can recover with significant upside potential.
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.
