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Wednesday, February 22, 2023 1:03:11 PM
Tightness In Sugar Pushes The Price To A Multi-Year High
By: Barchart | February 22, 2023
My Q4 2022 soft commodity review on Barchart highlighted sugar’s close at 20.04 cents per pound on December 30, 2022. Looking forward to 2023, I wrote, “Soft commodities are agricultural products, and worldwide inflation is increasing production costs.” Nearby sugar futures reached a 17.20 cents per pound low in August 2022 and have made higher lows and higher highs over the past months. I expect the bullish trend to continue at the 21.32 cents per pound level on the expiring March futures on February 22, but the road to higher highs could be bumpy.
The Teucrium Sugar ETF (CANE) tracks the price of a portfolio of the sweet commodity futures higher and lower.
Sugar reaches a new multi-year high
As the global pandemic gripped markets across all asset classes in April 2020, nearby ICE world sugar futures fell to 9.05 cents per pound, the lowest price since August 2007.
The twenty-year chart highlights that world sugar futures have made higher lows and higher highs since the April 2020 low, with the latest peak in February 2023 at 20.89 cents per pound, the highest price since November 2016.
The forward curve displays supply tightness
The forward curve, or sugar futures prices for deferred delivery, reflects short-term supply concerns.
As the chart shows, sugar prices for deferred delivery are progressively lower. While the nearby contract was over the 21.40 cents per pound level on February 22, free-market sugar for delivery in October 2025 was below 16.30 cents.
The backwardation, or progressively lower prices, highlights nearby market tightness. Backwardation assumes that producers will increase output to address supply concerns, and it also reflects that higher nearby prices will dampen the demand, adjusting future prices lower.
Production costs are rising
Inflation is increasing production costs for all commodities, and sugar is no exception. Rising labor, energy, transportation, fertilizer, and other input costs put upward pressure on all agricultural commodities and other raw material prices.
The most recent January U.S. consumer and producer price index data showed that inflation remains at the highest level in decades, with CPI and PPI coming in above the consensus forecasts. Food and energy prices have played a central role in pushing inflation higher. While interest rate hikes and other monetary policy tools address the economic condition, which has declined over the past months, monetary policy is most effective in fighting demand-side inflationary pressures. The supply side can be immune to interest rate hikes and other central bank policies.
When it comes to world sugar, Brazil is the world’s leading producer and exporter. Labor and other costs are highly sensitive to the local currency, the Brazilian real. Since sugar futures trade in U.S. dollar terms, the currency relationship between the dollar and the real can impact sugar prices. When the real moves higher against the dollar, output costs rise...
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By: Barchart | February 22, 2023
My Q4 2022 soft commodity review on Barchart highlighted sugar’s close at 20.04 cents per pound on December 30, 2022. Looking forward to 2023, I wrote, “Soft commodities are agricultural products, and worldwide inflation is increasing production costs.” Nearby sugar futures reached a 17.20 cents per pound low in August 2022 and have made higher lows and higher highs over the past months. I expect the bullish trend to continue at the 21.32 cents per pound level on the expiring March futures on February 22, but the road to higher highs could be bumpy.
The Teucrium Sugar ETF (CANE) tracks the price of a portfolio of the sweet commodity futures higher and lower.
Sugar reaches a new multi-year high
As the global pandemic gripped markets across all asset classes in April 2020, nearby ICE world sugar futures fell to 9.05 cents per pound, the lowest price since August 2007.
The twenty-year chart highlights that world sugar futures have made higher lows and higher highs since the April 2020 low, with the latest peak in February 2023 at 20.89 cents per pound, the highest price since November 2016.
The forward curve displays supply tightness
The forward curve, or sugar futures prices for deferred delivery, reflects short-term supply concerns.
As the chart shows, sugar prices for deferred delivery are progressively lower. While the nearby contract was over the 21.40 cents per pound level on February 22, free-market sugar for delivery in October 2025 was below 16.30 cents.
The backwardation, or progressively lower prices, highlights nearby market tightness. Backwardation assumes that producers will increase output to address supply concerns, and it also reflects that higher nearby prices will dampen the demand, adjusting future prices lower.
Production costs are rising
Inflation is increasing production costs for all commodities, and sugar is no exception. Rising labor, energy, transportation, fertilizer, and other input costs put upward pressure on all agricultural commodities and other raw material prices.
The most recent January U.S. consumer and producer price index data showed that inflation remains at the highest level in decades, with CPI and PPI coming in above the consensus forecasts. Food and energy prices have played a central role in pushing inflation higher. While interest rate hikes and other monetary policy tools address the economic condition, which has declined over the past months, monetary policy is most effective in fighting demand-side inflationary pressures. The supply side can be immune to interest rate hikes and other central bank policies.
When it comes to world sugar, Brazil is the world’s leading producer and exporter. Labor and other costs are highly sensitive to the local currency, the Brazilian real. Since sugar futures trade in U.S. dollar terms, the currency relationship between the dollar and the real can impact sugar prices. When the real moves higher against the dollar, output costs rise...
Read Full Story »»»
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Information posted to this board is not meant to suggest any specific action, but to point out the technical signs that can help our readers make their own specific decisions. Caveat emptor!
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