07-25-2014: October World Sugar: Global Stocks Offset Production Decreases

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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
Calendar Spread

Level Table
Other Factors
Recommendation

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2    6

101


Introduction

Sugar is having a problem with overproduction and declining demand. Carryover stocks are so great that it may take more than a year to unload them. Certainly the technical plicture looks bad for sugar, but fundamentally, some encouragement for higher prices is provided by sugar's price around or less than the cost of production. Government subsidies from some nations cloud the picture. The general consensus is that it will take some time to work through overstock, although production is declining and as oil prices rise, more sugar will be diverted to the production of ethanol.


Intermarket Analysis

We fed Kansas wheat, Chicago wheat, and soybeans into a neural network to get the following result:




Parabolic Chart

October World Sugar:

Parabolic Chart


Nirvana Chart

October World Sugar:

Initial Chart


News Analysis

Even though the world sugar supply outlook for 2019-2020 is supportive for sugar prices, a near-term ample global supply situation is pressuring sugar prices. Sugar has benefitted from modest gains in the Brazilian currency and also crude oil prices (as it is used in producing ethanol), but these elements are not enough to shift focus away from very large ICE futures deliveries occurring over the past month. China is importing less sugar, down 22.3% from last year at this time, 1.07 million tonnes so far in 2019 and 140,000 tonnes in June.

Citigroup sees a potential jump in sugar prices as nearby futures are below the cost of production, new crop production risks, combined with an increased net short position from spleculative funds. Citigroup sses that Brazil's weather issues could result in a lower planted cane area, lower sucrose content, and a decline in India's sugar production as much as 6 million tonnes.

India, the European Union, and Thailand may all be looking at lower 2019/2020 production. The Brazilian currency closed on a new 4-1/2 month high.

In Nepal, a quantitative restriction on sugar import has been lifted with the government deciding not to extend it beyond the end of fiscal year 2018-2019. Guatemala's Ministry of Economy signed an agreement with Taiwan to expand the minimum sugar export quota from 80,000 to 125,000 tonnes. This sugar enters the Taiwantese market duty-free and there is the option to increase the annual quota further.

In Australia, the cane production forecast was raised despite a slow crush rate. The crush rate there was down 0.95 million tonnes from a week earlier at 0.530 million tonnes. This was also below 1.574 million tonnes in the same period last year.

India will keep its sugar export subsidies despite complaints from rival exporters India and Australia to the World Trade Organization. India is also decreasing cane planting acreage. The latter could lead to ethanol shortages there. India of late is suffering from below average rainfall.

Sugar exports climbed to a 12-month high in Pakistan in June. Sugar production in Egypt rose to a record 2.48 million tonnes this season.

Around the world, too much sugar was produced in 2017 and 2018. In 2019, far less sugar was produced but it was still overproduced. This led to more sugar on the planet than ever before at this time. This appears to be priced into the sugar market already. This is, at least, what Czarnow is saying, a big sugar industry consultant and trader.

A significant global change in amount of sugar produced versus that consumed is projected for 2020, showing a deficit of production. Current high sugar stocks around the woirld are a safety net, and while they exist, it is hard for the market to strengthen rapidly because buyers do not need to chase the market higher. Czarnow projects a possible low of 10 cents for world sugar price before the oversupply concerns are lifted, but sees a almost certain increase in price coming after that. They project about six more months for changes to take effect. According to Czarnow, high stocks are not necessarily a major problem for the sugar futures market price. That market doesn't care if India has a lot of sugar in stock if it cannot be exported without a subsidy. It doesn't care about stocks of white sugar far inland in Myanmar awaiting transit to China. Rather it is concerned about what stocks are available to the futures market itself.

Raw sugar has an oiversupply that will accumulate and persist into 2020. A lot of the sugar is located in Thailand, a result of this year's large crop, resulting in 1.3 million toones oif excess raw sugar there this year. Most of the rest of oiversupply is about to be made in Center-South Brazil. Mills are making ethanol there, not sugar. This year the Brazilian milling industry sees itself as an fuel producer, not a fooid producer. Ethanol prices for the mills are at around 13 cents versus 12 cents for food use.

Brazilian raw sugar is the feedstock for many refineries in Africa and the Middle East. White premium is too low for them to operate profitably at full throughput. Global demand for raw sugar will be the lowest in 5 years throghout 2019. There simply isn't enough demand for raw sugar from Indonesia, Malaysia, or other buyers to soak up all the raw Thai sugar. Many wealthy countries are seeing a decrease in per capita sugar consumption. This is partly due to an awareness of how much sugar us consumed by individuals. Most people in Europe will tell you they are trying to reduce their sugar consumption.

Government regulation in the sugar market is having an impact. In the UK, the government instituted a tax on sugary soft drinks. But sugar taxes in Mexico and Denmark were ineffective because consumers shopped elsewhere such as in Sweden or Germany instead of Denmark, while in Mexico increased tax resulted in decreased demand.


Point & Figure Chart

 15.0|                                                                  T  7/19
     | ICE - Oct-19 Sugar #11 World, 112klb c/lb   Cm.=0.03  Lim.= 0.3
     |
     |
     |
 14.5|___________X_____________________________________________________________
     |           XO
     |           XO
     |           XO
     |           XO
 14.0|___________XO____________________________________________________________
     |           XO                X
     |           XOX               XO
     |           XOXO              XO
     |           XOXO              XO
 13.5|___________XO_O__X_____X_____XO__________________________________________
     |         X X  OX XO    XO    XO
     |         XOX  OXOXOX   XO    XOX   X
     |         XOX  OXOXOXO  XOX X XOXOX XOX
     |         XO   O OXOXOX XOXOXOXOXOXOXOXO
 13.0|_________X______OXOXOXOXOXOXOXOXOXOXOXO__________________________________
     |     X   X      OXO OXOXOXO O OXO O O O
     |     XO  X      OX  OXOXO     OX      OX         X
     |     XO  X      O   O OX      O       OXO        XOX
     |     XO  X            OX              OXO      X XOXO
 12.5|O____XO__X____________OX______________O_O______XOXOXO____________________
     |OX   XO  X            OX                O      XOXOXO
     |OXO  XO  X            OX                O      XO O O
     |OXOX XO  X            OX                OX     X    O
     |O OXOXOX X            O                 OXOX   X    O
 12.0|__OXOXOXOX______________________________OXOXOX_X____O____________________
     |  OXOXOXOX                              OXOXOXOX    O
     |  OXOXOXOX                              O O OXOX    O
     |  OXOXOXOX                                  OXOX    O
     |  OXOXO OX                                  O O     O
 11.5|__O_OX__OX_______________________________________________________________
     |    OX  OX
     |    OX  OX
     |    OX  OX
     |    OX  OX
 11.0|____O___OX_______________________________________________________________
     |        O
     |
     |
     |
 10.5|----|----|----|----|----|----|----|----|----|----|----|----|----|----|---
                1111111111111
      77788899990001111112222111122223334444444555555566667
      12200211221120011230111022301121220011233111122201220
      13638449481262623807399758054554271168600005723961172
The above chart is giving a conventional sell signal.


Cyclical and Seasonal Factors

We are headed toward a cyclical high and a seasonal up period.

Cyclicals Cyclicals Seasonals
Seasonals


Internal Program

Our best-performing internal program is "%R". It is giving a sell signal.

Internal Printout 1

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

Results


Third System Confirmation

Our third system has just triggered a buy 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 $1,047. Use of options is not 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. Large speculators 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 major trend to down 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 March 14.5 Call and Sell (1) Woirld Sugar March 14.0 Call @ 0.21 to the sell side or greater.


o 1 o 2 o 5


o 3


o 4


Calendar Spread

What the Oct. - May calendar spread suggests to us is that buying the near contract and selling the far one is at most times profitable, which we think is a sign that these futures may go up in the long run. The best time to enter or leave the above spread is when it is at -0.90 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -1.22 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be heading toiward the sell the far, buy the near point.





Level Table:

Level Table

The path of least resistance is down.




Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 7/25 ).

Intraday Chart





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 - 2
Place 14 October World Sugar on a Sell Watch with stoploss @ +0.63 above the get-in point when recent price is represented as "151.52".
____________________________________________________________________________________________________________________________________________C.H.