Commitment of Traders Report Shows Growing Bid in Sugar

Andy Waldock  |

The sugar market, like many commodity markets has been grinding lower, now down 40% for 2015. Additional problems have been forced on the sugar market by currency weakness among key producers Brazil and India. This has made it cheaper for them to produce sugar domestically and sell it globally thus, increasing the current supply glut on top of 5 years of production surpluses. In spite of its recent dismal performance, we see commercial trader action indicating that the sugar market internals are gearing up for a rally attempt.

Sugar prices are now the lowest they've been since spring of 2009 and are threatening support at $.10 per/lb. This decline has brought end line commercial sugar users to the market as they begin to lock in forward input prices. Commercial traders are value traders. The interest of commercial long hedgers entering the market as shown by their actions in the net commercial trader position on the chart below is easy to see. They've been buyers for four straight weeks and their current net position of long 5,000 contracts leaves plenty of room for additional purchases. Looking back through their history, it shows most of the recent rallies have seen the net commercial trader position grow beyond 20,000 contracts. In fact, their record long position of roughly 46,000 contracts was set in May of 2007 near $.09 per/lb, prices we haven't seen since.

Commercial long hedgers are beginning to see the value of $.10 per/lb sugar.

The commercial traders, via Cot Signals, have done a pretty good job calling the market turns in sugar this year as plotted on the chart. The current situation requires a bit of finesse as buying a decline could be dangerous due to the beaten down nature of this market. Therefore, I will use a buy stop to enter a long position once the market begins to move higher and let it get me long on its way up. Given the recent resistance levels, I'll look at placing an entry buy stop around $.1075. If this order is filled before the market trades below $.1037 again, I'll take the long position and place a protective sell stop at what will end up being the swing low at $.1037. Initial targets would be the $.1150 - $.12 per/lb area.

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