The Unbearable Sweetness of Sugar Trading
"Sugar sales from state stockpiles in China, the world's second-biggest consumer, won't make up for a domestic shortage, increasing the possibility of more imports and higher prices as the government struggles to contain inflation at the fastest pace in three years."
This is a long sentence to follow but stick with us on this one. The dispatch above was a paraphrasing by highly regarded RJO grain analyst, Rich Feltes in his Morning Notes of a quote from Bloomberg, which itself was a continuation of a story that was making the rounds a week or so ago. The Chinese were talking about selling sugar from their stockpiles and suggesting that they wouldn't be buying much in the open market for a time. It appears that time may be up.
We have been searching for another fundamental reason for the strength we have seen in the last few days and short of a few production downgrades for Brazil (which we also view as a potentially serious bullish development) we think this is it. Funds were on the buy side the last few days propelling the market through moving average resistance in the area of 27.65. We think the adage "Don't be short things the Chinese need to buy" is playing out on the sugar chart.
Fundamentals largely point lower. But the chart is strong and gaining steam for what looks to be a move to new highs. We continue to see banks talking up cattle, corn, and sugar as reasonable places to invest as emerging market economies continue to increase their affluent populations and increase western style eating habits. We suspect sugar might be some type of safe haven play for money hiding from the stock market but aren't smart enough or connected enough to know that is the case for sure. What we do know is that we want to trade this market from the long side using options. Call spreads could work fine for most traders. For those traders with a combination of frugality and a heightened tolerance for risk ratio call spreads would be the way to play here.
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Joe Nikruto
Senior Commodities Broker
He adds that he also enjoys futures trading because anyone can do it. "Your success depends on how you handle the risk and how much work you are willing to put in. You don't need a big-time Wall Street connection, or a deg.... Read More
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