The sugar market has been in a downtrend, and I see more losses in store amid weak demand and ample supply. While low prices should eventually entice buyers, for now, I’m recommending playing the short side with futures and options positions.

World raw sugar futures prices have hit their lowest price in 21 months, and the while the market seems to be probing for a bottom, demand has yet to follow. Again this year, another massive crop is expected to come out of Brazil, the world’s largest producer. Slower-than-expected demand from China and Russia should continue to heighten selling pressure. Production is expected to increase out of India and China as well, the world’s two largest consumers of sugar. Since they are producing more, they will import less. The trade house cane production forecast released last week for Brazil’s center-south crop was 420 million tonnes, up 13.5 percent from last year. Additional fund selling was triggered on Friday, April 20, after sugar penetrated January’s lows and the July NYBOT #11 futures contract extended those declines to as low as 9.20 cents per pound on Monday, April 23.

The Commodity Futures Trading Commission’s Commitments of Traders Report showed the market to be still in an overbought condition, with non-reportable traders net long 10,655 contracts. These participants could be unwinding these positions, igniting further losses.

Looking at the chart of sugar futures, the market broke key support at 10 cents and I see a move down to 7.50 or 8 possible. I’m recommending short positions in sugar, buying October 9 cent puts at 30 ticks. At current levels, the cost on the option would be $336, plus commissions, which is your defined risk on the trade. October futures have 144 days until expiration, and the underlying futures are currently trading at 9.83.

If you want to sell October sugar futures outright, I always recommend using stops as a form of risk management. I’d go short around 9.70, with a buy stop at 10.38. If the market continues to head lower, I would take profit at 7.50 and trail the stop down to limit losses. Of course, my strategy can change as the fundamentals or technicals change.

Electronic, or Open-Outcry Sugar?

Today you can trade sugar futures via open outcry at NYBOT, or via the electronic ICE platform. I’ve often been asked which to use. If you are an individual trader, I would recommend getting the bid/ask and using limit orders when you trade sugar, but I feel the fill quality is better and quicker on the ICE electronic platform. This is not always the case, but it’s my opinion.

Call me for more specifics on trading strategies to suit your particular risk tolerance, and, ask about a special promotion to get 50 percent off commissions for your first 30 days with a new account.

Frank D. Cholly is a Senior Market Strategist with Lind Plus. He can be reached at 888-801-9302 or via email at fdcholly@lind-waldock.com/.

Past performance is not necessarily indicative of future trading results. Trading advice is based on information taken from trade and statistical services and other sources which Lind-Waldock believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder.

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