Time to Pour Some Sugar Futures into Your Portfolio?

Down and out sugar may provide the boost your portfolio needs in the second half of the year. 

Since hitting its all-time contract high back in February 2011 at more than 36 cents, sugar has experienced a relatively steady five-year decline into the teens as ideal weather helped boost yields from Brazil to India.

Lately though the global ICE raw sugar contract #11 $SB_F has gotten rather sleepy. Checking the daily chart, the front-month contract has consolidated into a two-and-a-half cent range between 17.5 and 19 cents dating back to February.

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What could break sugar’s sleepy spell? El Niño.

In fact, the last time sugar experienced the bull market run of a generation, between 2009 and 2011, it was the last time we had a significant El Niño event. A combination of deadly flooding in Pakistan, a deeply disappointing rainy season in India and uncooperative weather in Australia led to record prices with an initial peak above 30 cents in February 2010 and then its all-time high a year later.

This time around though the world has more sugar than it needs. In fact, the expired July contact saw its lowest delivery of raw sugar since 2000 thanks to the supply glut. Furthermore, the International Sugar Organization forecasts global production will exceed demand for a fourth straight year in the season ending in 2014. This kind of data is making analysts and futures traders wax bearish. But there is one problem: prices can’t seem to break 17.45.

Instead, let’s discuss a vastly different scenario that remains as-of-this-moment extremely plausible.

With forecasters predicting a 90% chance of El Nino this year, sugar crops from Australia to Brazil and India are vulnerable. In a typical El Niño cycle, the Indian monsoon cycle is weaker than usual, leading to below-average rainfall and thus smaller sugarcane yields. And so far this cycle is looking weaker for the world’s second largest sugar exporter. In fact, experts have already started calling for a drought with monsoon rains at their lowest level in five years.

In the short term, the market appears to be balancing the weather concerns with the voluminous supply. Who knows, rains may return (like for wheat crops in the Midwest) or remain elusive. Once this months-long trading range is broken, I’ll look to enter long above 19 cents or short below 17.50, depending on how the market plays out.

For now we must wait for Mother Earth and the whims of price action to determine our move.


Thursday Links: The 2013 Futures Markets Winners and Losers

After a holiday break, I’m back with some fresh morning links for your reading pleasure…

Futures Content

The USDA publication calendar for 2014 (USDA)

A look back at 2013’s big chill in grain futures (Farm Futures)

The 2013 futures markets winners and losers (Attain Capital)

Cocoa is expected to star this year…but the chart looks ugly today (Agrimoney)

Demand for physical gold increased 41% at the Perth Mint last year (Bloomberg)

Other Stuff

Professor says Bitcoin is a throwback to an earlier era; what is old is new (Bloomberg)

A recap of the many bad charts that circulated the financial blogosphere in 2013 (A Dash of Insight)

In hindsight, those who shorted gold and bought stocks did best last year (WSJ)

Tuesday Links: To Taper or Not to Taper? That is the Question…

Howdy y’all, I’m back after two weeks away with a fresh set of links. I was on holiday in Africa and am planning a quick post soon about what I learned about investing while on safari.

But before I get to that, I’m introducing a slight tweak in my daily links. I’ll now be dividing out the commodities/futures specific links with other stuff I find interesting. As this is primarily a futures trading blog, I’m listing the former first.

Let me know if you have any feedback on this new approach or have any other ideas. I love to hear from you.

Thanks for reading!

Futures Links

It is time for a fun bubble in commodities (Financial Times)

Contrarians are getting that shiny look in their eyes for gold (Market Beat)

Arabica coffee jumps to two-month high… of course it does when I’m away (Business Recorder)

The oil market sits around waiting for the Fed taper decision (Investing.com)

Corn can’t break the pressure as GMO concerns and the South American harvest loom (Business Recorder)

Other Fun Stuff

To taper or not to taper? That is the question… (Tim Duy)

A nice list of investing-themed books from 2013 (Reading the Markets)

I look forward to this every year…investments fads and themes 1996-2013 (Reformed Broker)


Links Special Edition: Top Trading Tips from the Past Month

In addition to researching the markets I trade, I also keep an eye out for interesting commentary on trading tips and resources. Here are a handful of posts from the past month you may find useful…

Ten prerequisites for trading (All-Star Charts)

Twenty books every trader should know about (Brian Lund)

Four things I’m doing right now to be a kick-ass trader (Rogue Traderette)

The seven habits of highly effective traders (New Trader U)

Developing the right mindset (The Minimalist Trader)

Top 10 trading books (Trader Planet)

Nine tips for becoming a more patient investor (Clear Eyes Investing)