January 15, 2021
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- At $16.73, sugar prices are trading at the highest price level since April 2017.
- While USDA's estimates are largely bearish, low supply from Thailand and EU have supported prices.
- BRL/USD is rallying; which is a favorable environment for sugar prices.
Sugar prices are on an upward momentum. At the beginning of Friday’s session, the commodity was up by 5.62% to trade at $16.73. this is its highest price level since April 2017. While the fundamentals are largely bearish, the low supply from the European Union and Thailand has offered support to the prices. Furthermore, the Brazilian real has continued to strengthen against the greenback; which is good news for the bulls looking to invest in commodities like sugar.
Investors look past USDA’s bearish estimates
On Tuesday, the US Department of Agriculture released this month’s WASDE report for the 2020/21 season. Based on its outlook, the sugar market will be characterized by increased supply, higher ending stocks, and unchanged usage.
The agency has adjusted its forecast for US sugar supply by an extra 111,093 short tonnes raw value (STRV) to reach 14.117 million. In Louisiana, one of the key cane-growing areas in the country, production estimates have been amplified by 62,000 STRV.
Besides, the agriculture department has maintained its December’s forecast on the commodity’s use. As for imports, the amount coming from Mexico has been increased by 9,453 STRV. At the same time, the agency has adjusted the ending stocks for the current season by an extra 1.777 million STRV.
With the figures indicating ample supply, the fundamentals are largely bearish. As a trader, courses on fundamental analysis will give you a better understanding on how to include such aspects in your trading strategy.
Notably, low production in the EU and Thailand have offered support to sugar prices. Thailand is the second-largest exporter and fourth-largest producer of sugar in the world. Data from the country’s Office of the Cane & Sugar Board (OCSB) shows a decline in the commodity’s output by 54% YoY. Besides, cane crush has dropped by over 50% in the current season. At the same time, the European Union has recorded a lower beet crop as a result of the yellowing virus.
Brazilian real strengthens against US dollar
Sugar prices are rallying as Brazil’s currency strengthened against the US dollar. Brazil is the largest producer and exporter of raw sugar. At the same time, sugar is largely traded in dollars. As such, a weakening dollar creates a favorable environment for the commodity’s buyers.
On early Friday, the BRLUSD was trading at around $0.1920. After being on a downward trend for close to a week, the currency pair has been rallying for three consecutive days. Since Tuesday, it has risen by over 5%,