Sugar Futures Then And Now, Why It Matters
Michele Schneider | Jul 05, 2022 03:45AM ET
In 1972, supply shortfalls, rising demand, unrest in Pakistan, and the devaluation of the dollar all contributed to a large increase in the price of sugar.
By February of 1974, rising inflation, rising demand from China, rumors of a large purchase by the USSR on global markets, large purchases by Arab nations, a bad European harvest, and the perception of imminent shortages, sugar prices spiked to 20¢/lb., before sprinting to over 65¢ in November.
Supply increases led to price declines thereafter, until another spike in 1980 due to crop shortfalls in Russia and Cuba. In October 1980, futures for March delivery reached over 45¢/lb.
By 1982 prices fell back to under 6¢/lb.
Fast Forward to 2020.
The price of sugar and its price pattern is based on many economic factors, trends, weather, government protectionist measures, and supply and demand.
What can the past tell us about the future?
Today, the largest world producers of sugar are Brazil, India, and China. As a global commodity, sugar is used in all types of foods, syrup, and industrial uses, such as biofuel.
In the Philippines, retail prices of sugar have surged.
However, in some countries, sugar crops are improving.
India and Brazil expect increases in sugar yield because of favorable weather.
Other Asian producers in the region are also benefiting from good weather.
Nevertheless, the E.U. is expected to see a drop in the planted area next year.
Thailand suffered a major drought which hurt its sugar production. Yet, like the U.S., their sugar consumption or demand is also increasing.
And China, although a big producer of sugar, does not export much. With high tariffs, China is a net importer of sugar.
h2 What does that tell us? /h2Supply, although now better than it was before the pandemic in India, Brazil, and other parts of Asia, remains uncertain because Mother Nature is unpredictable.
Get The News You Want
Moreover, with any global social unrest like we saw in the early 1970s and even with slightly better supply, we could still see demand increase, especially with the theme of stagflation persisting.
China can wind up buying more than they have as they continue to emerge from the pandemic.
Add to that, during hard times folks turn to sugar. And the X factor-the dollar-with any major decline-which is entirely possible, we could see sugar prices repeat not only the 2021 highs, but possibly higher.
h2 We Turn to the Charts/h2The chart of the price in 2020 at its lowest was 9¢/lb. By the fall of 2021, the price peaked to 21¢/lb., or more than double.
To date, sugar has settled at around 18¢/lb., down from the peak but still double the low from 2020.
If sugar falls below 18¢/lb., then perhaps the inflation narrative really does begin to change. But sugar has barely declined compared to say wheat, which has fallen 31% from its peak.
That suggests we should continue to watch sugar for clues. Could we see a 1979-type of second explosion in commodity prices?
This is where we have big eyes.
h2 ETF Summary/h2S&P 500 (SPY) 378-380 support zone
Russell 2000 (IWM) Support is 170 and needs to clear 174 to stay in the game
Dow (DIA) 307 support and needs to clear 315
NASDAQ (QQQ) 282.50-283 pivotal and 290 resistance
KRE (Regional Banks) 56 the 200 WMA 60 resistance
SMH (Semiconductors) 209-210 needs to clear
IYT (Transportation) 211.90 support with resistance at the 50-DMA 231.70
IBB (Biotechnology) Above the 50-DMA with resistance on weekly chart at 121.15 support at the 50-DMA 116
XRT (Retail) 58.95 support to hold and 60.75 the point to clear
/h2
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.