Published On: Tue, Mar 7th, 2017

Analysts markets show no sweet agreement on sugar


I want to start by looking at a blend of the sugar price chart and the spot level minus the 50- and 200-day moving averages on the left hand side of my first chart. This is coupled with the time-based technical sentiment and a three-year chart on the right.

Source:, Spotlight Ideas    

One can see that the running level of the spot price has fallen below both the 50- and 200-day moving averages. Reading the left-hand side, one can see that at such an event horizon the spot price tends to fall further.

Similarly, the right-hand side shows market sentiment is about as bearish as it can be and the three-year chart indicates that sugar has entered a new corrective channel and currently looks prone to a retreat as far as 18, however 16 is more likely (US cents/lb).

Market and analysis diverge

How, then, is the non-professional market investor to equate the signals from the market with the rather upbeat analysis for sugar prices from Abares, the official Australian commodities bureau?

Abares has said that “…strong demand” will support world sugar prices…” and increased its forecast for futures prices at a time when there is mounting global concern over the threat posed to Western consumption from health concerns. The European Union, Brazil, and the US are the second, fourth, and fifth largest global consumers respectively.

Abares raised by 1 cent to 21 US cents/lb its forecast for average sugar prices, measured by New York’s spot futures contract, in 2016-17 on an October-to-September basis. In addition, it sees prices rising further during the next season, to average 22.0 US cents/lb before showing a tendency to easing back to 20.8 US cents/lb in 2018-19.

Clearly the forecasts are at odds with the market as the Abares price projection is out of kilter with spot New York raw sugar futures at 19.54 US cents/lb and contracts for 2017-18 averaging about 19.0 US cents/lb.

Even in 2018-19 when Abares suggests prices will retreat they are calling a 14.29% premium over the market call at 18.2 US cents/lb.

Will output lag consumption growth?

Abares said that its outlook reflects the “…expectation that world sugar consumption will grow faster than production, reducing world stocks and the stocks-to-use ratio…”, an important pricing metric.

The bureau has factored in declines totalling 15.7m tonnes in global sugar stocks over three successive seasons, to 2017-18, before a rebuild of 1.9m tonnes in 2018-19. This is at odds with data available from the Organisation for Economic Cooperation and Development and the Food and Agriculture Organisation of the United Nations, (OECD and FAO).

Source: OECD and FAO 

The chart shows that inside the golden oval that the OECD and FAO actually see the Stocks:Use Ratio rising until 2019. That would, in my mind give more weight to how the market is reading the outlook for sugar prices as opposed to the analysis from Abares who argue that across the medium-term world sugar production is projected to grow at an average annual rate of around 1.6% and consumption by 2.3%. 

Therefore, I am going to open a medium-term short side play on sugar.

This must be seen as running for three-months or so. I think Abares at a strategy unit has a three to five-year strategic medium-term scenario. So it is easy to see why there may appear a a paradox in the outlook.

Sugar five-year chart:

Source: Spotlight Ideas

Parameters (Sugar May 2017 SBK7, US cents/lb)

Entry: 18.98 at 1000 GMT

Targets: 18.71… 18.21… 17.83

Stop: 21.67

Time horizon: medium-term

— Edited by Michael McKenna

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