Sugar is a volatile soft commodity.
The price of the sweet substance that many of us ingest all day long has a habit of doubling, tripling or halving in value over the course of a few months. In August 2015, the price of world sugar that trades on the Intercontinental Exchange traded to the lowest level since June 2008 when the price found a bottom at 10.13 cents per pound. At the lowest price in years, many sugar producers in countries that do not subsidize production decided to plant other crops that offered a better economic return. Less production caused inventories to decline, and the price started to rise when sugar moved from a surplus into a deficit market. The price rallied all the way to 24 cents per pound by October 2016. Sugar appreciated by over 135% over a fourteen month period.
Commodities are economic animals. Prices fall to levels where production becomes a losing proposition and inventories replace new output and deficits develop. The deficit then results in price appreciation that once again encourages producers to increase output leading to new supplies which tend to emerge at price peaks. The highs in sugar in October 2016 caused a surge in production, and the deficit of 2016 turned into the surplus of 2017. Sugar fell like a stone from last October through May 2017.
On May 5, the price of July ICE sugar futures fell to 15.24 cents per pound, the lowest level since April 2016 when the sweet commodity was on its way to October highs.
The price of the commodity fell into oversold territory when it comes to price momentum, and it ran out of steam or selling on the downside. Sugar then staged a turnaround from the May 5 lows. Technical resistance for sugar futures was at 16.49 cents per pound, the May 2 highs before the sharp selloff, and the price was able to reach 16.59 cent on May 22. However, as often happens in bear markets where fundamentals have turned, sugar was unable to follow through on the break above that resistance level, and the price declined once again.
Source: seekingalpha.com