Sugar’s Trading Near Key Support, But What’s the Trend?


Jan. 26 2016, Updated 2:57 p.m. ET

Reading the recent trends in sugar prices

Sugar futures prices for March contracts were trading near the key support of $14 per pound on January 25, 2016. But prices fell sharply on the day along a downward price channel. As a result, the volume of contracts increased by nearly 26.9%, and open interest rose by 0.23% on January 25 due to active prices movements in the near term.

Analysts believe that the speculation of a restricted sugar supply might not last long, however, and prices could decline more sharply and slip below $14 per pound. Sugar prices broke the 100-day moving average level with the fall on the day.

The graph below indicates that prices could continue in the range of $13.8–$14.5 per pound in the near term.

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What’s really driving sugar prices?

The speculation of cheaper availability from Brazil pushed prices down on January 25, 2016. Meanwhile, the US dollar depreciated by 0.24% on January 25, and because a low US dollar is unfavorable for sugar imports, it kept sugar prices above its support level.

Rabobank international projection for the European Union supported the production sentiment. The speculation that international prices would benefit supported sugar futures prices on January 25.

What this means for sugar-producing companies

While falling sugar prices support food businesses that use sugar as an essential ingredient, they tend to hurt companies in the sugar-producing industry. On January 25, 2016, Campbell Soup Company (CPB), and General Mills (GIS) continued their downward price movement, declining by 0.05% and 0.98%, respectively, hindered by the previous day’s advance.

By comparison, Hershey Company (HSY) fell by 1.7% on January 25, 2016, higher than its last fall on January 21. Cosan (CZZ), on the other hand, plunged by 4.3% on January 25, partially losing the gains it saw on the previous day, when it experienced a jump of over 12.7%. Notably, the iShares MSCI Brazil Index (EWZ) dropped by 2.5%, losing the majority of the benefit it saw on the previous day’s rise of 4.3%.

Now let’s sidestep to another key soft commodity: cocoa.


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