09-29-2017: March World Sugar: Supplies from Brazil Buregon

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Introduction
Intermarket
Parabolic

Nirvana
News
Point & Figure
Cyclic/Seasonal

Internal Progrm
Third System
Margin

Historic Range
Commitment
Volatility

Random Chart
Options
Calend Spread

Level Table
Other Factors
Recommendation

6     01

3     2

1     5

4     7


Introduction

At one time, more cane sugar from the U.S. was produced in Hawaii than anywhere else. In fact, it was the main source of revenue and employment for the island which has now become largely dependent upon tourism and produces no cane sugar at all while still having thousands of acres of abandoned sugar cane fields with the plants growing like weeds. It simply could not compete with Brazil, which is now the main supplier of sugar throughout the world. What happens in Brazil is key to this market, and Brazil is experiencing a bumper crop. Factors affecting the use of sugar such as crude oil prices that determine how much of the crop will be diverted to ethanol production are not favorable at this time. Brazil's currency also gives it an advantage in competitive exports. A backlog of sugar in storage is also not helping prices at this time, nor are things expected to improve much in the following season.


Intermarket Analysis

We fed Sugar, Coffee, and Cocoa into a neural network to get the following result:




Parabolic Chart

March World Sugar:

Parabolic Chart


Nirvana Chart

March World Sugar:

Initial Chart


News Analysis

Brazil is the problem with world sugar prices. Its trade group Unica projected that sugar production during the first half of September was 3.13 million tonnes, up 29% from the same period last year. That same estimate included cane crushing at 45.4 million tonnes, up 37.9% from last year, and ethanol output during that period was 2.1 billion liters, up 30% from last year. Unica also said that the share of cane used for ethanol was 52.04%, which compares to 51.01% last year. Higher crude oil and gasoline prices may have encouraged Brazilian mills to shift production to ethanol. Rain is forecasted for the Center-South regions of Brazil, which will benefit development for late-harvested cane. China's August sugar imports were down 20.8% from the previous year at 1.669 million tonnes. Imports were reduced due to a large import duty that was imposed by China earlier this year on sugar.

The supply situation is bearish due to the Brazilian situation. A turnaround in energy prices or an increase in the exchange rate for Brazilian currency would seem to be required for sugar prices not to remain on the defensive. Most major producers are looking at larger upcoming output. Some analysts believe sugar is oversold, but fundamentals may override.

The recovery in Brazilian sugar output was largely unexpected to be this strong. Platts (McGraw-Hill) recently bought sugar consultancy Kingsman. Kingsman thinks Brazil's center-south region sugar output will drop to a three year low in the 2018-19 season as a dearth of replanting takes its toll on cane yields. Also, ethanol is believed to be going to take a larger share of the harvest. Sugar output could fall by 2.1 million tonnes if this materializes. Cane harvest hopes have been cut by lower rates of crop rotation, and an increase to some 3.8-4.0 years average age of crop next season could lead to lower agricultural yields.

Travelers in Hawaii see thousands of acres of sugar cane growing in fields like weeds, but no cane sugar is produced in Hawaii anymore. The last sugar mill closed years ago. The California and Hawaii jingle, "C&H Pure Cane Sugar from Hawaii" is no more, as South America completely dominates production and refining.

Uses of cane sugar for ethanol pay better than sugar used for food. There was damage to Cuban sugar cane fields by Hurricane Irma, where output is estimated to have been reduced by 980,000 tonnes there. In India, on a October to September 2017-18 basis, production is estimated to increase by 5.4 million tonnes. That is after lower rainfall and a shift away from growing cane. Monsoon rains in parts of India are seriously lagging long-term average estimates. India is seen as the world's largest consumer of sugar.

Abares, the official Austrailian commodities bureau, lowered its forecast for New York raw sugar prices to 13.0 cents per pound for 2017-18. Abares said its outlook reflected world sugar production increasing at a faster rate than previously expected. EU sugar beet plantings are expected to increase by 800,000 tonnes to a 20-year high of 20 millioin tonnes.

Consumption is expected to fall in the U.S. and EU because of long-term declines in the population growth rate and trends in diet and nutrition policies driven by heatlh concerns.

Sugar prices were driven up last year by a perceived supply deficit, which is now seen as fading for the 2017-18 season.


Point & Figure Chart

 27.5I                                                                  T  9/26
     I ICE - Mar-18 Sugar #11 World, 112klb c/lb   Cm.=0.03  Lim.= 0.3
     I
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             111                11111
      355577911224455667888999990011212233556889
      101212001120101220012012230201220122223022
      641140393031861377503162705075803389240786
The above chart is giving a conventional sell signal.


Cyclical and Seasonal Factors

We are headed toward a cyclical low and a seasonal down period.

Cyclicals Cyclicals Seasonals
Seasonals


Internal Program

Our best-performing internal program is "Thrust". It is giving a buy signal.

Internal Printout 1

Results of "Thrust" for World Sugar (blue lines = successful trades, red, unsuccessful): (Always in the market.)

Results


Third System Confirmation

Our third system has triggered a sell signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


Margin

The point value is $1,120. Initial margin on a single contract is $1,848. Use of options is advised.


Historic Range

Scale trade buyers are entering the market for the long term in this price range.

Historical Chart


Commitment of Traders

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Commercials with the best track record are getting increasingly-short.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3


Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that a change in trend to up is imminent near a volatility low point.

Range/Volatilitiy Chart


Possible Future Prices

Random Chart


Option Recommendation

Our option trade recommendation is to Buy (1) World Sugar July 15 Call and Sell (1) World Sugar March 13.5 Call @ 0.28 to the sell side or greater.


o 1 o 2 o 3 0 4 o 5


Calendar Spread

What the Oct. - Mar. calendar spread suggests to us is that buying the near contract and selling the far one is at most times not profitable, which we think is a sign that these futures may go down in the long run. The best time to enter or leave the above spread is when it is at -0.40 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -0.85 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be approaching the buy the near, sell the far point.





Level Table:

Level Table

The path of least resistance is down.
 26.5|                                                                  T  9/26
 ICE - Mar-18 Sugar #11 World, 112klb c/lb   Cm.=0.03  Lim.= 0.3
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         1 1 1 1 1 1                                                  
       9 0 0 1 1 2 2 1 1 2 2 3 3 4 4 5 5 6 6 6 7 7 8 8 9 9           9
       2 1 2 0 2 0 2 0 2 0 2 0 2 0 1 0 1 0 1 2 1 2 1 2 1 2           2
       8 1 5 8 2 7 1 6 3 6 1 7 1 4 9 3 7 1 5 9 4 8 1 5 1 5           6


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 9/26 ).

Intraday Chart


                 Risk Versus Opportunity Report
                ________________________________

                    SBH8    March World Sugar

                      High Price:  14.89
                   Current Price:  13.91
                       Low Price:  11.88

                            Risk: -0.146
                     Opportunity: -0.303

                    (O/R) Ratio =  2.071


Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis + 1
Parabolic Chart - 1
Nirvana Chart - 1
News - 1
Point & Figure - 1
Cyclicals - 1
Seasonals - 1
Internal System 1 + 1
Internal System 2 0
Third System - 1
Historic Range + 1
Commitment of Traders - 1
Range/Volatility + 1
Level Table - 1
Other Factors - 1
Total - 6
Place 8 March World Sugar #11 on a Sell Watch with stoploss @+0.66 above the get-in point when recent price is represented as "13.83".
____________________________________________________________________________________________________________________________________________C.H..