The price of sugar is at a 28-year high. The underlying real reason for this is because we’re going to have a global deficit. The supply/demand typical fundamentals: Supply is a lot less anticipated than what we expected, and the demand continues to grow at a rapid pace.
Emerging economies of the world, like India and China are improving their diet. They purchase more refined food. Most of the packaged foods that we see are processed foods with sugar in them. Also, India – which typically has monsoon rains that they depend upon to nourish the crop with moisture – they didn’t get the type of moisture that is typical. And then on the other hand, Brazil – which is a huge producer – they’re getting rains, but they’re getting rains at the wrong time. And so the two in combination. There’s going to be a shortage in meeting the demand on a global scale, and then of course you get the influx of the speculators .
Sugar is leading the commodity market, Sugar is an example of a market that has been ignored after what's gone on with the broader economy. However,the fact is sugar demand is still relatively healthy. Sugar demand doesn’t really matter; it doesn’t matter to sugar whether GDP is contracting or not because sugar is focused on its end uses, which are fairly inelastic; that’s something that’s going to continue.
At the moment, the October 2009 and March 2010 option contracts are the most active.
As you can see on the chart of the October 2009 futures contract above, the price surpassed the $0.2300 per pound level twice, moved back to $0.2150 per pound, then trotted past the $0.2300 mark again.
This is what technical analysts call a “triple top” and if sugar doesn’t move above $0.2300 again, we can seriously count on the market having a big retracement lower – most likely between $0.1900 and $0.2000 per pound.
So if you play the downside and it does make that retracement, I’d suggest taking profits at that $0.1900 to $0.2000 level.