Sugar price has been on an upward trend over the past 7 months. In April SUGARUSD reached ~$0.10. This price level was the lowest price level since 2018. However, months after this record low, the price of this soft commodity has risen to reach its current trading level of ~$0.15. In addition to the weaker dollar, ethanol prices are set to rise.
A weaker U.S. dollar continues to strengthen sugar price
If you are interested on how to invest in commodities, one of the concepts that you should remember is that most of the key commodities are traded in the U.S dollar. When the dollar is weakening, as it is currently, foreign buyers are able to purchase higher volumes of the produce.
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Currently, the U.S. dollar index is trading at $92.23. The figure represents a decline of 2.13% from $94.90, which has been its peak in November. Sugar price’s highest level this year was in March when it was trading at around $99.10. Ever since, it has been relatively weak; an aspect that has resulted in the rise of sugar price.
Rise in ethanol prices is sweet news for the sugar industry
Recently, the Cabinet Committee on Economic Affairs (CCEA) increased the prices of ethanol produced from sugarcane juice, B-heavy molasses, and C-heavy molasses. CCEA hiked the prices by Rs 3.17, Rs 3.34, and Rs 1.94 per litre respectively.
Icra Ratings’ senior vice president Sabyasachi Majumdar said, “With ethanol contributing 10-15 per cent of the sugar mills’ turnover for integrated sugar mills, remunerative ethanol prices are expected to encourage sugar mills to enhance the supply of ethanol for blending, thereby supporting their revenues, profitability, and improving their ability to pay sugarcane farmers.”
Sugar is the key component in the production of ethanol. The expected increase in ethanol prices comes at a time when Brazil is experiencing adverse weather conditions. Brazil is the largest producer of sugar in the world.
Goldman Sachs forecasts a prolonged bull market for commodities
Two days ago, Goldman Sachs maintained its stand that the current recovery momentum in different commodity markets is likely to be the beginning of a prolonged bull market. The firm’s analysts stated that commodities were the best cushion against the probable inflation. The bank went ahead to state that the rising demand from China increases the chances of an upward trend for agricultural commodities and base metals as compared to that of oil. The changes will be in effect for the ethanol supply year that begins in December this year.
Sugar price technical outlook
Sugar price is finding resistance around the $0.15, which has been the highest price level this week. Besides, the commodity is trading above the 50-day and 100-day exponential moving average. It has seen trading above the line of support since September’s lowest price level. As such, I expect the sugar price upward trend to continue. However, if the price goes downwards past this line, my outlook may be invalid.