(Agrimoney) – Raw sugar futures soared more than 3% to a two month high, after punching through what had been identified as a key technical resistance level.
May raw sugar futures broke through the 15 cents a pound level on Friday morning.
“Technically it’s looking interesting again for the sugar bulls,” said Thomas Kujawa, of Sucden Financial.
“We have finally breached a key technical level,” Mr Kujawa said.
Rallying real
Sugar has been gaining strength from the rallying Brazilian real, which is now at a six-month high.
The real has a strong effect on sugar prices, as Brazil is the world’s top exporter.
“Each step higher in the real shaves a little off the real revenue Brazilian mills earn from sugar exports and makes ethanol revenues look better,” said Tobin Gorey, at Commonwealth Bank of Australia.
Ethanol to be favoured?
“Sugar prices, since mid‑2014 and perhaps as far back 2012, could reasonably be characterised as searching for the point where Brazil would switch more cane juice from sugar to ethanol,” said Mr Gorey.
So far the weak real has kept that tipping point from being crossed, because crushers prefer to produce sugar, to sell for dollars in the international market, than ethanol, which is consumed domestically as road fuel.
“Now the real, looking like it might head higher, goes from being a loadstone to a life jacket,” Mr Gorey said.
Eyes on the net long
Sugar markets will be looking closely at the commitment of traders report from the US Commodity Future’s Trading Commission, out after markets close on Friday.
For a long time hedge funds have held large long positions in the raw sugar market.
These long positions have weighed on prices, as it raises the possibility of a rapid sell-off.
The long position has been shrinking sharply in recent reports, lending support to sugar, but this situation may have altered over the last week, as the real rallied.
“We shall see if the funds are perhaps developing a propensity to reinvest on the long side,” said Mr Kujawa.
The May New York raw sugar futures contract was up 2.7% in afternoon deals, at 15.22 cents a pound, after reaching 15.34 cents a pound, its highest level in more than two months.
