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Sugar stays at decade highs – more gains incoming?

The rally in commodities also pushed related assets like sugar to multi-year highs as supply could be limited in the next months.

The global supply seems thin

The entire planet appears to be experiencing a sugar scarcity. Lack of deliverable sugar before Friday’s expiration has pushed the May white-sugar futures contract to its highest level in more than a decade. 

This caused the white premium, the price difference between refined and unrefined sugar, to reach record highs on Tuesday before retreating. New York’s settlement price for raw sugar was 2.6% higher, the highest since October 2016. In the past three weeks, white sugar futures have increased by nearly 20%, reaching levels not seen since November 2011. 

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John Stansfield, a senior sugar analyst at DNEXT Intelligence, told Bloomberg that the number of contracts to be closed, also known as open interest, indicates a significant delivery of more than 880,000 tons. He also added that traders with short positions don’t have the physical sugar to tender.

Indian exports hitting new records

Prices for the sweetener have increased due to the likelihood of restricted exports from the leading exporter India and dwindling supplies from Thailand, Europe, China, and Mexico. 

According to Union Commerce Minister Piyush Goyal, India’s total exports reached a new high of $770 billion in 2022-23, representing a 14% increase over the previous year. It is a record, increasing from $500 billion in 2020-21 to $676 billion in 2021-22, a record-breaking increase.

The minister expressed concern regarding the previous year’s export performance, saying there were worries due to the conflict in Ukraine, leading to concerns that the accumulated inventories in the developed world might prevent India from achieving such a phenomenal performance.

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India is one of the largest exporters of white sugar, but export quotas are nearly depleted, and there are no actual plans to increase them. India’s refining industry may soon have to switch from domestically produced unrefined sugar to Brazilian imports. 

Production estimates for the 2022-23 season will worsen the global scarcity, according to the chief of analysis at Wilmar International Ltd., Karim Salamon. Next year’s harvest will likely not be superior. As a result of crop competition, cane, and sugar beet acreage is likely to decline in most regions, Salamon added.

Parabolic chart, but outlook still bullish

On the rise, sugar prices have surpassed 2016’s highs at $24 per pound. So long as it trades above that level, the near-term trend is bullish, and the long-term outlook is also positive. The next objective could be a symbolic $30.

In contrast, a failure to maintain a price above $24 could result in increased profit-taking, likely driving the price toward $21.30, where previous highs are located.

sugar

Sugar 1W chart, source: tradingview.com, author’s analysis

Tomáš is a financial reporter with US markets as his main field. Tomáš is an aspiring author and entrepreneur aspiring to help people get better in financial knowledge.

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