Sugar prices are in pullback mode after climbing to a near four-year high, as the market awaits new fundamentals and at the same time faces some technical pressures following its recent winning streak.
On Wednesday, raw sugar futures for March delivery declined 0.3% to reach 22.95 per lb. while December white sugar declined 0.6% to $594.10 per ton. Prices remained locked in their two-week trading range, but for raw sugars technical pressures are favoring the downside and have the commodity rated as a strong sell. Support is at $22.51 and resistance at $23.44.
Sugar prices have rallied this year on expectations for a supply shortfall. While there is a brighter outlook for the upcoming crop, market tightness is still expected, and could become worse. This week sugar industry group Unica said that the upcoming crop in Brazil’s main center-south cane belt could be smaller following a few seasons of lower investment in sugar fields. Sugar futures are up over 50% so far this year.
While sugar production has been climbing, global consumption has also, but at a faster pace. Global consumption for 2016 to 2017 is forecast at a record 174 million metric tons, and global production is pegged at 169 million metric tons, leaving a supply deficit. While the deficit is modest, it means that a slight change in production or consumption could swing the market either into a deeper deficit, or it could remove the deficit altogether. Due to this, this harvest season could be an especially volatile time for sugar prices.
As sugar prices stabilized in the last few weeks, money managers have reduced their bets on higher prices. According to the latest Commitment of Traders report, money managers slashed their net long positions in sugar by 18,000 contracts last week, the largest reduction in six months.