In a September 3 Barchart article, I wrote:
All signs are that sugar prices will continue to make higher highs over the coming weeks and months. Since bull markets rarely move in straight lines, buying on price weakness during corrections will likely provide optimal returns.
In early September, nearby world ICE sugar futures were at the 25.81 cents per pound level after rising to a 27.41 high in April 2023. In September and October 2023, the sweet commodity made higher highs as it moved towards a test of the 2011 36.08 peak.
The sugar rally continues
Sugar # 11 futures on the Intercontinental Exchange continue to make higher lows and higher highs.
The continuous sugar #11 futures chart highlights the bullish pattern since the April 2020 9.05 cents per pound low. In October 2023, the sweet commodity futures that reflect the free-market sugar price rose to 27.67 cents per pound, the highest price since 2011.
The forward curve in backwardation- Supply concerns
Backwardation is a condition where prices for deferred delivery are lower than for nearby delivery. Backwardation reflects near-term supply concerns, but it also tells us that the market expects producers to increase output at higher prices while the elasticity of demand causes less buying and rising inventories.
The forward curve shows progressively lower sugar prices in 2024, 2025, and 2026. However, the deferred contracts for delivery in 2026 remain above the 20 cents per pound level.
U.S. subsidized sugar rises above its 2011 peak
Sugar #16 reflects the price of the sweet commodity in the United States, subsidized by the government. Countries support sugar production to ensure adequate supplies regardless of the price level.
The sugar #16 chart highlights at 44.74 cents per pound on October 20; the price has eclipsed the February 2010 42.50 cents peak.
Meanwhile, the free-market price remains below the 2011 high but is trending towards a challenge of that level.
The twenty-year sugar #11 chart illustrates the upside target at the February 2011 36.08 cents per pound high.
Higher oil supports world sugar prices
Corn is the primary ingredient in U.S. ethanol production. The U.S. is the world’s leading corn producer and exporter. In Brazil, the leading producer and exporter of free-market sugar, the sweet commodity is the ingredient in biofuel. Rising oil prices and supply concerns put upward pressure on world sugar prices.
Nearby NYMEX crude oil futures reached a bottom at $63.57 per barrel in early May and rallied 36.4% to the $86.68 level on October 23. The rally in oil could cause Brazil to earmark more sugar production for ethanol processing, limiting exports at a time when the price is already at the highest level in a dozen years.
CANE follows world sugar higher
The most direct and liquid route for a risk position in sugar is via the Intercontinental Exchange futures and futures options. The Teucrium Sugar ETF (CANE) tracks sugar futures prices as it holds a portfolio of three futures contracts.
The most recent rally in March #11 futures took the price 16.6% higher, from 23.42 cents on August 23 to 27.30 cents on October 23.
Over the same period, CANE rallied 14.1% from $13.30 to $15.18 per share. At $15.11, CANE had over $25.7 million in assets under management. CANE trades an average of 53,587 shares daily and charges a 0.22% management fee.
CANE owns three futures contracts for different delivery periods. The most price action tends to occur in the nearby contract that attracts speculative interest. Therefore, CANE tends to underperform nearby sugar #11 futures on the upside but often outperforms during downside corrections. CANE only trades during U.S. stock market hours, missing highs or lows in the sugar futures arena when the stock market is not operating.
The trend in any market is always your best friend. In late October 2023, the sugar #11 trend remains bullish, and a challenge of the 2011 36.08 cents level could be on the horizon.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
