On May 24, in a Barchart article, “Sugar Consolidates the Recent High,” I wrote, “The trend is always your best friend in markets. In late May 2023, the path of least resistance in sugar remains higher.” Nearby July #11 world sugar futures were at the 25.87 cents per pound level on May 24. On June 15, the price was near that level as the bullish trend remains firmly intact.
Sugar prices are resting near the recent high
Nearby world sugar futures prices were above the 25.0 cents per pound level on June 15.
The chart highlights free-market sugar’s rise from 9.05 cents per pound in April 2020 to the most recent 27.41 cents peak in April 2023. The 203% two-year rally took world sugar futures to the highest price since October 2011. At over 25.80 cents on June 15, sugar futures remain not far below the high and in a bullish trend.
The forward curve displays tight supplies
World sugar futures’ forward curve was in backwardation on June 15.
The ICE sugar number 11 forward curve chart displays progressively lower prices for delivery months out to May 2026. The backwardation is a sign of nearby tight supplies and assumes that producers will increase output to meet the demand and ease the tight conditions.
Backwardation is bullish in the near term but could become bearish over the coming months as production increases. There is nothing that incentivizes production like higher prices, as the cure for higher prices in any commodity market is always the high price.
Meanwhile, as Brazil is the top sugarcane producer and exporter, the weather, the level of the Brazilian currency, and fuel prices will determine how long the backwardation lasts and how high prices can move over the coming weeks and months.
The Brazilian real supports sugar prices
While ICE sugar futures trade in U.S. dollar terms, the Brazilian currency plays a role in the path of least resistance of sugar prices. Local production costs are in Brazilian real, and a rising Brazilian currency against the U.S. dollar tends to put upside pressure on dollar-based sugar futures prices.
After reaching a $0.16756 low against the U.S. currency in May 2020, the real has been edging higher against the U.S. dollar. In 2023, the real has traded on either side of the $0.20 level, and the ten-year chart displays a slight bullish bias for Brazil’s currency- A rising real supports higher sugar prices. The real reached a high of over $0.65 in 2011 when sugar prices peaked at 36.08 cents per pound.
The June WASDE was supportive
The USDA’s June World Agricultural Supply and Demand Estimates Report told the sugar market, “U.S. sugar supply for 2023/24 is projected lower than last move by 90,749 STRV (short tons raw value) on lower beginning stocks. WASDE also pointed out that Mexican production for 2022/2023 fell and was unchanged for 2023/2024.
While crude oil and gasoline prices have declined, they remain elevated, increasing the demand for sugar-based ethanol in Brazil and putting pressure on the tight fundamental equation.
The technical targets for free-market sugar
ICE sugar #11 futures experienced a technical bullish breakout in April 2023.
The twenty-year chart highlights the bullish trend that took sugar futures to the highest price since October 2011. The current upside target is the February 2011 36.08 peak.
The most direct route for a risk position in free-market sugar is the #11 futures contract on the Intercontinental Exchange. The ICE contract also offers put and call options on the soft commodity. The iPath Series B Sugar Subindex TR ETN (SGG) and the Teucrium Sugar ETF (CANE) do an excellent job tracking sugar prices for market participants seeking sugar exposure without venturing into the leveraged and margined futures arena.
The trend is always your best friend, but bull markets rarely move in straight lines. Sugar futures have pulled back to the 25 cents per pound level after reaching 27.41 cents in April. It could be the perfect time to add the sweet commodity to your portfolio if sugar is preparing to embark on its next upside leg.
More Softs News from Barchart
- Morning Cotton Prices in Red
- Cotton Closes Red ahead of the Storms
- Cocoa Prices Strengthen on Dollar Weakness
- Sugar Pushes Higher as the Brazilan Real Rallies
