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Sugar - London No.5 - Potential Trade Idea - TrendFollower and Jim Rodgers

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To me it seems like Sugar London No.5 is trading range bound, at least for now. 

It also seems like we about to see if 'Triple Bottom'

In case anyone has not come across a 'Triple Bottom' then it can be at times a bullish chart pattern (not always) which is shown by three roughly equal lows followed by a breakout which is above the resistance level. As someone who follows 'Trend Following' principles I would not look to initiate a 'Long' trade based on this though I fully appreciate others on the IG Community who have different trading styles may wish to consider it. 

If the breakout happens and the price action forms a confirmed trend then I would certainly consider entering a 'Long' trade but not until then. For me there are still better trading opportunities elsewhere. For short term day traders and swing traders which range bound activity may suit their trading style. 

 

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Since Jim Rodgers has given his interview on IG, I have been monitoring the price of Sugar. For me if anything a trader would have profited if they had 'shorted' Sugar after the interview rather than either trade it on the 'long' side or even invest in it. 

712496996_LondonSugarNo.5_20190721_10_01.png.a081278176720c7d7edcdb2ef9587a50.png

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Finally both London Sugar No.5 and New York No.11 are looking rather bullish. 

720042862_LondonSugarNo.5_20191206_18_44.thumb.png.1316154f05f4ae2d9af0cd2467bc3d73.png

1553938354_NYSugarNo.11_20191206_18_45.thumb.png.3d02d94e5859e5b0558283f54460ab4d.png

Potential Trade Idea from TrendFollower:

If I was going to execute a 'Pairs Trade' then I would most likely go 'Long' New York and 'Short' London. 

Edited by TrendFollower

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Both New York and London Sugar prices are rising. 

It is being reported that the Sugar market will return to deficit in the 19/20 season. However any potential upside may be capped depending on India's Sugar production. 

Right now the price action is bullish and 'Soft Commodities' in general are trending upwards. 

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Just look at Sugar - London No.5 go.

1387677452_LondonSugarNo.5_20191219_19_02.thumb.png.e2c953885f885edeb3cec692cde5b7ad.png

It is about just watching the price action and trying to identify breakouts and trends. I must admit there was a time when I did not think we would see this move but it has come. 

There really are some great trends both 'long' and 'short' in Commodities right now.

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I must admit I am really enjoying Sugar - London No.5 as a 'long' trade. The prevailing trend is bullish at the moment. 

It is trading above its 20, 50, 100 and 200 DMA's as the chart below shows:

1557791521_LondonSugarNo.5_20191228_10_40.png.ee631726891176d5e2d7bda9d2714a1b.png

Now have a look at the 20, 50 and 100 MA curves. They are sloping upwards which is an extremely bullish indicator. I do like to pay particular attention to the slopes of the MA curves as some of you will have realised in my other threads and posts. It is not just above MA's but how the curves are sloping. You want to see upward sloping curves on a bullish uptrend and downward sloping curves in a bearish downtrend.

Not many retail traders will be trading Sugar or even looking at Sugar. There will not be much analysis on Sugar either. When Jim Rodgers put it in my radar Sugar was displaying sideways price action and for me it was not tradable from a trend following perspective. However, I just continued to follow the price action and saw the breakout and kept monitoring the price. 

Of course what you need in a strong trend for a soft commodity like Sugar is the fundamental backdrop and narrative to support the price action as otherwise it ends up being a short trend which does not manifest itself into a bigger and longer trend. 

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London Sugar hit 370.5 today. 

1305293219_LondonSugarNo.5_20200106_18_03.png.7e1b8689fe0cc535292cbb6c13e7e299.png

Now there is a theory that higher energy prices drive up the use of cane to produce the biofuel ethanol rather than sugar. So it seems there is a link between the oil price and sugar price. It also seems that the Iran-US tension narrative is affecting the Sugar prices too. 

It is being reported that apparently we are looking at more than a 6 million tonnes deficit this season and there is likely to be a deficit next season too.  This is a very strong narrative when it comes to supply and demand dynamics and fundamentals. The stronger this narrative, the stronger the price action and trend tends to be when it comes to Commodities. 

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Can London No.5 Sugar hit 400 in this bullish phase?

The prices have not been this high over the past 52 weeks or slightly more. Now reports are suggesting a high expectation of a supply deficit. I mean Citigroup raised its sugar deficit estimate to -7.6 MMT from a previous estimate of -7.0 MMT

If we delve into some fundamental analysis, it is being reported that there are sugar crop risks in India and Thailand. Also the WASDE report cost its US 2019/2020 sugar production estimate by -1.5% to 8.158 MMT from a December estimate of 8.280 MMT. Supply and demand will play a critical part in the next phase of Sugar's price action in my personal opinion. I read that Paragon Global Markets last week forecasts that the 2019 / 2020 global sugar deficit will reach -10 MMT which is well above the ISO's estimate of -6.1 MMT due to lower sugar production in Mexico, US and Thailand. These are real supply risks and any increase in deficit will I think lead to higher Sugar prices. 

One of the issues I do see is that when funds are overwhelmingly long on Sugar, any selling, profit taking or change in fundamentals can lead to a sharp bearish price move. If funds decide to liquidate some of these positions then Sugar could turn and reverse sharply. 

I think those interested in trading Sugar should keep a close eye on supply deficit numbers in terms of forecasts against actuals and then assess this with the price action. 

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So to answer my question based on price action then 'YES' as London Sugar has hit the psychologically important 400 price level. It hit 400.90 today. 

It is being reported that Sugar prices have surged based on Asian supply shortfall.

When you look at Sugar prices in India and Brazil in their local currencies then they have too shot up in price. Both the Indian Rupee and Brazilian Real have weakened against the US Dollar. 

For me Sugar is one of the better performing 'Soft' Commodities right now. It seems dry weather in Thailand which is around the fourth biggest Sugar producer means its Sugar harvest is going to be lower than expected. 

The recent price action is like a 'Green Rocket' if you look at the 'daily'. One must ride the trade in the direction of the trend but I am anticipating a fantastic quick and sharp shorting opportunity shortly once this current move is exhausted. 

 

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London Sugar is just getting 'Sweeter'!

It hit 406.40. I do wonder if this move is being amplified by speculative capital, trend followers and the herd (FOMO) rather than solid fundamentals? If so then there is going to be a sharp reversal in price. If not then we may see a small drop before upward continuation.

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After selling off as news of the coronavirus hit, looks like Sugar is taken off again. Back through 400 and re-testing the highs.

1274763360_LondonSugarNo.5_20200129_13_05.thumb.png.2b339714cf803a69df4e555fec711598.png

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It is trying to break out beyond 400 but it is struggling. 

If you look at the Coffee chart and even Copper chart then you will appreciate what could be coming next with Sugar price action!

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Copper, Coffee, Aluminium, Zinc. The sell off has been sharp and relentless. But my eye is drawn to Cocoa and Sugar which seem to have rallied..... But that's your point, a reversal will be very sharp and very relentless.

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@Bopperz,

At the moment London No.5 seems to be showing signs of trend weakness. Now it could be that the trend has exhausted and we are about to see a turn or it could just be a mere dip and short consolidation before further upside continues. 400 for me needs to be defended. Any major breach below could see some serious selling pressure.

However, the one thing I have learnt in my experience is that upward trends can last a lot longer than one thinks. 

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There is a new term being used called 'Sugarflation'. 

It is being reported that Pakistan is currently in a food inflation crisis. 

Now my personal experience tells me that there will be some form of price pullback in Sugar. This will potentially be a short term shorting opportunity is the uptrend is going to continue.

Apparently Sugar buyers are nervous because the assumed Indian export surge did not happen. 

This is why I am anticipating a downward move imminently. 

1483892461_LondonSugarNo.5_20200131_07_20.thumb.png.a87fc7f15cbbd2abfbb9c5809c9bbe78.png

As you can see from the chart above there are signs of trend exhaustion / trend weakness.

If the prices were not to decline then this would be in my opinion a very bullish indicator and could result in a potential price spike quickly. 

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This seems like a critical price area for me at around 400. It seems London Sugar is consolidating here before deciding whether buyers continue to drive price upwards or sellers take over and drive it downwards.

If it is downwards then I am anticipating a similar sharp/quick drop like Coffee which has been a fantastic recent short by the way.

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There are supply concerns being reported which may be the reason for the recent price action on Sugar. It seems there are tighter global sugar supplies. India Sugar Trade Association (ISMA) reported today that sugar production in India which is the world's largest sugar producer dropped sharply. The figures being quoted around -23% y/y to 16.66 MMT during October to February. 

It also seems that Sugar prices may be seeing some support from a drought in Thailand. Now Thailand is the world's fourth biggest sugar producer. Apparently if reports are accurate then this years drought was the worst in 40 years. So fundamentals / weather conditions / supply / production declines are in favour for Sugar prices to move upwards. It is being reported that Thailands sugar production could drop -25% y/y to 9 MMT from 14MMT in 2018/2019. This is down to dry conditions which would reduce sugarcane yields. 

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The March contract expiry was nasty, as everyone ran for the door at the same time. Prices fell 2% in an hour, which is a pretty sharp move for sugar.

I'm waiting to see if people have moved into the next contract, combined with those fundamentals, it could keep rising. Just stay away from the next expiry!

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If you have a look at my post in this thread on 31 January then you will see what I was thinking. 

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If you look at my posts from 31 January and 1st February and look at the chart below then you will appreciate my trading thoughts. 

1305011424_LondonSugarNo.5_20200310_19_07.thumb.png.623192e92461640d48276cfa4e64da8b.png

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I am reading two things at the moment when it comes to Sugar. Ethanol Refiners switch to Sanitisers and we may see stock piling which both could lead to supply issues and rising prices.

These risks do not seem to have been priced in so we could see an increase in Sugar prices very shortly as this news hits the speculative traders, hedge funds et al. 

There is a potential turn in London Sugar as shown by the chart below.

826676548_LondonSugarNo.5_20200326_18.11-2.png.88d691d6facf679eb159f26004b5a22e.png

As India is on lockdown I can see lots of Indians at home drinking Indian tea and consuming Sugar. Now multiply this across the globe and you can begin to see why Sugar could see a price rise imminently. 

There is also a potential move upwards to fill a 'GAP'. 

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I wanted to share this report with those interested in trading London Sugar No.5 below:

 

London Sugar Climbs To A 1-1/2 Week High On Concern About Supply Disruptions

Thu Mar 26, 10:56AM CDT

May NY world sugar #11 (SBK20) this morning is down -0.02 (-0.18%), and May London white sugar #5 (SWK20) is up +13.70 (+4.04%).

Sugar prices are mixed this morning with London sugar at a 1-1/2 week high and NY sugar just below Wednesday's 1-1/2 week high on concern about supply disruptions. In India, several ports and terminals have declared force majeure due to shutdowns from the coronavirus pandemic. The Indian Sugar Mills Association (ISMA) on Wednesday said that India's cane crushing may be affected during the 3-week long lockdown imposed by the Indian government to slow the spread of the coronavirus.

Sugar prices also rallied today on the outlook for reduced sugar production in India after the Indian government asked sugar mills and distilleries to ramp up production of hand sanitizers to combat the spread of the coronavirus pandemic.

Strength in the Brazilian real today is also positive for sugar as the real is up +0.79%, just below Wednesday's 1-week high against the dollar, as it recovers from last Wednesday's record low of 5.2523 reals/USD. A stronger real discourages export selling by Brazil's sugar producers.

A 4% plunge in WTI crude oil today is undercutting sugar prices. The recent plunge in crude oil prices to an 18-year low last Wednesday was negative for ethanol prices and may prompt Brazil's sugar mills to divert more cane crushing toward sugar production rather than ethanol production, thus boosting sugar supplies.

Another negative for sugar was Wednesday's forecast from Rabobank for a global 2020/21 sugar surplus of +0.6 MMT compared with a -6.7 MMT sugar deficit for 2019/20. Rabobank projects that India's 2020/21 sugar production will climb +15.9% y/y to 33.5 MMT and that EU 2020/21 sugar output will climb +4.0% y/y to 18.3 MMT.

Sugar prices continue to be undercut by concern about weaker sugar demand due to the coronavirus pandemic. Researcher Czarnikow last Tuesday cut its global sugar consumption estimate for this year by -2.0 MMT, citing a collapse in out-of-home food and drink consumption due to the closure of restaurants because of the coronavirus pandemic.

Sugar prices were undercut by Wednesday's report from Unica that Brazil's 2019/20 Center-South sugar production Oct-through mid-Mar rose +0.61% y/y to 26.532 MMT. The percentage of sugar cane crushed for sugar fell to 34.38% from 35.34% last year and the percentage of cane crushed for ethanol production rose to 65.62% from 64.66% last year.

Sugar has support from reduced sugar production in India. The ISMA last Tuesday reported that sugar production in India, the world's second-largest sugar producer, dropped sharply by -21% y/y to 21.58 MMT during Oct1-Mar 15.

Sugar prices also have support from reduced sugar output from Thailand, the world's fourth-biggest sugar producer. Thailand's Office of the Cane and Sugar Board on March 4 reported that Thailand's sugar production from Dec 1 through Mar 2 was down by -21.3% y/y at 8.1 MMT. The Thailand Meteorological Department said this year's drought in Thailand is the worst in 40 years, which is slashing the country's sugar output. The Thai Sugar Millers Corp on Feb 7 forecasted that Thailand's 2019/20 sugar production would drop -35% y/y to 9 MMT from 14 MMT in 2018/19 as dry conditions reduce sugarcane yields.

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The longer the shutdowns / lockdowns across the world, the bigger potential soft commodities like Sugar and Coffee have. 

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