Sugar May Slump 24% on Descending Triangle: Technical Analysis

(Bloomberg) – Raw sugar, the worst performer on the S&P GSCI Commodity Index after Arabica coffee in the past year, will probably plunge 24 percent over the next three months, according to a technical analysis by Trading Central SA.

“Prices are making successive lower-highs and lower-lows and are capped by a declining trend line in force since 2011’s top,” said Ludwig Garric, an analyst at the Paris-based company, who correctly predicted soybeans’ rally to a record last year. That’s “signaling a downward trend,” he said.

Raw sugar plunged 49 percent from a 30-year intraday high in February 2011 as farmers from Brazil to Thailand expanded cane planting and boosted a global glut. The most-active contract ended little changed at 18.49 cents a pound on the ICE Futures U.S. in New York yesterday, extending this year’s decline to 5.2 percent after a 16 percent drop in 2012.

“The confirmation of the descending triangle given by the downward breakout of 18.8 cent-support calls for the extension of the downward track towards 14 cents,” Garric said in an e-mail dated Jan. 23.

World output will exceed demand by 7.8 million metric tons this year, Czarnikow Group Ltd., the London-based sugar trader, said Dec. 19, increasing the forecast for a surplus it made in August by 9.9 percent. Rabobank International boosted its estimate by about 12 percent to 6.6 million tons on Jan. 17.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index. A descending triangle is a bearish chart pattern showing a horizontal bottom under a historical support level and a declining trend line, connecting lower highs.