Sugar futures were in a steady downtrend during the first half of this year. Then, the market has consolidated for the last several months – trading between nine and eleven cents per pound.
Worldwide supplies of sugar are currently plentiful and that is the reason for the drop in prices this year. However, sugar now looks like a much cheaper component for the production of ethanol as many of the traditional grains have had substantial increases in price. This development should make the fundamentals look much better for sugar over the long-term.
Demand will likely increase for sugar-based ethanol as crude oil prices continue setting record highs. Brazil is the largest producer of sugar ethanol and it is likely their operations will continue to expand.
Technically, sugar futures have started to trend higher. With the supply and demand picture improving, the lows near 9 cents will likely hold. A break above 11 cents would look very positive.
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