After surging to a 17-month high in the prior session, sugar futures and related exchange traded products plunged Thursday as a strengthening U.S. dollar pushed traders to take some profits off the table amidst weakness in the broader commodities space.
On Thursday, the iPath Bloomberg Sugar Subindex Total Return ETN (NYSEArca: SGG) declined 6.3% and Tecrium Sugar Fund (NYSEArca: CANE) decreased 4.3%. Nevertheless, since the February 19 lows, SGG is still up 35.8% and CANE is 30.2% higher.
ICE sugar futures were down 5.0% Thursday to $0.1587 per pound after hitting a peak of $0.1627 per pound Wednesday.
Sugar prices may be pulling back as traders engage in the time honored tradition of profit taking. Prior to Thursday’s sell-off, technical traders may have noticed that both SGG and CANE were both trading in overbought territories as indicated by their relative strength index – a technical momentum indicator that compares the magnitude of recent gains to recent losses.
“We feel that a correction is due ahead of the long weekend and perhaps after,” Sucden Financial senior trader Nick Penney told the Business Recorder. “However, there may also be many who, having ‘missed the boast’ on the recent rally, are waiting to go long or add to long in the face of an increasingly positive outlook for sugar in the medium/long term.”
Despite the selling on Thursday, many market observers remain bullish on sugar’s outlook in light of the ongoing supply shortage for the 2015-2016 season. Dry conditions in many producers including Brazil, India, Thailand, China and the Philippines due to the El Nino weather phenomenon has damaged sugar crops.
[related_stories]Moreover, top producer Brazil is ramping up its cane crushing capabilities earlier than expected, which could exacerbate a late season shortage, writes Donald Levit for Economic Calendar. While the cane crushing may help supplies in the near term, Brazil’s actions could raise prices toward the end of the season if supplies fall short as many are expecting.
“It has been clear for some time now that after several years of surplus, the current season, and probably the next, will see a shortfall in supplies. Estimates of the deficit are gradually being raised in the wake of bad news from leading producing countries,” Commerzbank said in a note.
Rabobank estimates that sugar consumption could surpass production by 6.8 million metric tons for the season, or 2.1 million tons higher than previously expected.
iPath Bloomberg Sugar Subindex Total Return ETN