Sugar Price Prediction After Hitting a 5-Month Low

Jan 10, 2022 12:35 PM ET
Sugar Price Prediction After Hitting a 5-Month Low
  • Sugar price has extended December losses into the new week of 2022. 
  • Improved yield prospects for key exporters are weighing on the soft commodity.
  • A strong US dollar is also a key driver of the weeks-long downtrend.

Key drivers

In the first week of 2022, sugar price was in the red for four out of five sessions. It extended last month’s losses amid the positive outlook for sugarcane production in key growing areas. In Brazil, which is the top exporter of cane globally, recent rains have heightened yield prospects for the harvesting season set to begin in April. Improved supply outlook in Thailand and India, which are key sugarcane exporters, is also weighing on the prices.    

Furthermore, the downtrend may continue in the new week amid the yearly rebalancing of commodity indexes. The usual January index roll commenced on Friday and is expected to continue for five sessions. Raw sugar will likely be subject to net selling during this period. The reweighing comes after the sweetener rallied in 2021 as a result of shipping challenges and adverse weather in Brazil. 

Besides, sugar price is reacting to the US dollar movements. Similar to other commodities, the soft commodity has an inverse correlation with the value of the greenback. This is founded on the fact that a strong dollar makes it expensive for buyers holding other currencies. 

The dollar index, which tracks the value of the greenback against a basket of six currencies, ended Friday’s session down by 0.52% at $95.73. During the session, the dollar dropped by about 0.58% as a reaction to the lower-than-expected US nonfarm payrolls data. 

Nonetheless, it has remained above the steady support zone of $95.55 since mid-November. It will likely remain above that level in the short term amid the heightened rate hike bets; an aspect that may continue to exert pressure on sugar price. 

Sugar price prediction

The soft commodity ended the first week of 2022 in the red. For about two weeks now, sugar price has been on heightened downward momentum. During this period, it has dropped by 6.74%. Notably, it has remained below the psychological level of 20 since late November when it declined from its highest level in close to 5 years at 20.61.

Sugar No.11 futures contract, the benchmark for raw sugar trading worldwide, ended Friday’s session down by 0.77% at 18.05. Earlier in the day, it hit an intraday low of 18.00, which is its lowest level since August 2021. 

On a four-hour chart, it is trading below the 25 and 50-day exponential moving averages. Besides, it ended the week in the oversold territory with an RSI of 26. 

In the coming week, sugar price will likely remain on a downtrend; an outlook supported by both the fundamentals and technicals. At the start of the week, a corrective rebound is likely. If this happens, it may continue to find support at 18.00 as it rises to the support-turn-resistance level of 18.46. 

As the bears remain in control of the market, a move below 18.00 will likely place the next target at July’s low of 17.31. On the flip side, a move above the resistance level of 18.46 may push sugar price to along the 50-day EMA at 18.82.

However, for a trend reversal to occur, the bulls will need enough momentum to get the commodity to and past the crucial zone of 19.50. Based on the fundamentals, the bearish outlook may continue in the short term.  

The price cart of sugar №11 futures


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