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Azucar – Not so Sweet for the Bulls

In the last 18 months as one can see on the chart below sugar has been trending lower depreciating 30% dragging futures to their lowest levels in three years.  There is no denying the direction of the trend and until we see prices retake the down sloping trend line we are grasping at straws. However I think aggressive traders can wade into bullish trade as I think prices penetrate that trend line in the coming weeks. Just this week the 50 day MA (light blue line) was probed and though it failed an advance above that pivot point would be a shot across the bow and potentially awake the tired bulls.

 

So have we found an undervalued commodity?

 

This will likely not be a quick in and out trade and may have a duration of several months but when weighing the potential risk/reward I think soft traders can take a stab with a first objective of 19.50 cents ($2,900) and risk just under the recent lows ($600). There are plenty of reasons to be bearish but what I’ve learned over the years if the sentiment is bearish and the market is not moving lower or the sentiment is bullish and the market refuses to move higher take note.

Bearish developments:

1.)   Another world production surplus for the 13/14 season is projected. The monster crop I think has already been factored in to a large extent.

2.)   Further weakness in the Brazilian Real could spark more aggressive selling trying to increase exports before the currency depreciates more.

3.)   Weather: No major delays are expected from the recent rain activity in Brazil. India’s monsoon rainfall has delivered much needed water as precipitation should bring relief to drought stricken areas.

 

Bullish developments:

1.)   Sugar has shrugged off outside market influences and we are starting to see increased demand from China. China imported 338,068 tons of sugar in May, up 33% over last year and ytd 15% more than last year in the first 5 months in 13’.

2.)   The fact that the sugar has absorbed so much weakness from outside influence and held support leads me to believe we are close to a value zone.

 

As always, I’m here to discuss specifics and give guidance. Shoot me an email…Give me a call…

Filed in: Commodities

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