Sugar Futures Hit Three-Year Lows on Supplies

by on January 8, 2014 5:06 pm BST

Sugar futures added to 2013 declines after reaching three-year lows made on June 2010. Global sugar production is seen to be increasing, adding to an already over supplied market. Australia, the world’s third-largest sugar producer, may have a harvest in excess of 32 metric tons which is 1.5 metric tons more than the previous season. Somar Meterologia said that rains in Brazil is likely to further boost crops.

Sugar prices are down due to production exceeding global consumption for the fourth straight year with inventories reaching a record of 43.38 million tons, according to the US Department of Agriculture (USDA). “Looks like demand is being very slow, at least at the beginning of the year. It’s hard to get confident that the market is going to be trading higher,” said Alex Oliveria of Newedge USA LLC.

Production in Thailand added to the glut after production jumped a whopping 67 percent to 2.38 million tons in the season’s first 42 days.

The weekly chart, extended four years out, gives an idea of how low sugar can go. The chart shows a high of $36.08 and a low of 11.32, and sugar is currently trading at $15.72. Price action is currently on a support line, but the pure excess supply is going to dry up upward moment outside of corrections since the overall trend is clearly down.

Current support and the four-year low is creating a potential demand area, which is rather large. However, the trend line from the weekly high is providing a rough forecast of where prices can go. The mid-point that connects to trend line also represent the point where prices began to take-off in 2009.

The forecasted target for sugar is $13.07.

WK Chart of SB (4Y)

WK Chart of SB (4Y)