Andrew Hecht CANE Games SGAR SGG SGGB

A Tribute To A Sugar Rush In The Leadup To Halloween – Teucrium Sugar Fund (NYSEARCA:CANE)

Sugar Continues To Sweeten - Teucrium Sugar Fund (NYSEARCA:CANE)

At the moment is Halloween, and fairly quickly doorbells throughout the USA will begin ringing as youngsters of their costumes come to houses to say, “trick or treat.” Luggage will fill with goodies, and the consumption of sugar will spike as the youngsters devour the candy treats which have develop into a practice in our nation.

Except for the spike in sugar consumption round Halloween, the candy commodity is a staple in most of the meals individuals eat every day around the globe. Individuals eat a lot sugar, that diabetes has turn into a critical well being challenge for many who are delicate to the illness and eat too many candy treats all through their lives.

In October 2016, the worth of sugar rose to a excessive of 23.90 cents per pound. By September 2018, the worth had greater than halved in worth, falling to its lowest worth since 2008 at 9.83 cents per pound because the October futures contract rolled to March on the Intercontinental Trade.

For many who don’t commerce within the ICE futures market which is probably the most direct route for investments or a buying and selling place in sugar, the iPath B Bloomberg Sugar Complete Return ETN product (SGGB) and the Teucrium Sugar ETF (CANE) do a superb job replicating the worth motion within the ICE sugar futures market.

The low in September now appears like the underside of the pricing cycle within the sugar market which recovered by over 40% in October.

A rejection of the lows in October

The worth of ICE sugar futures fell to their lowest degree in a decade and traded under the 10 cents per pound degree for the primary time in August and September.

Supply: CQG

Because the month-to-month chart highlights, close by sugar futures fell to a low of 9.91 cents in August and made a decrease low at 9.83 cents in September earlier than the lively month October futures rolled to March. The March futures solely declined to a low of 10.80 cents per pound given the contango or ahead premium within the sugar market which was an indication of oversupply.

Sugar fell to lows under the August 2015 backside at 10.13 cents as an virtually good bearish storm descended on the sugar market. After the rally that took sugar to a excessive of 23.90 cents in October 2016, elevated manufacturing led to swollen inventories. In 2018, the decline within the Brazilian actual put further strain on the sugar market because the world’s main producer of sugarcane noticed its foreign money transfer from $zero.32 to underneath $zero.24 towards the U.S. greenback. A weaker actual offset a number of the losses within the greenback-based mostly worth of sugar and inspired promoting as output remained excessive.

Because the October futures rolled to March and a brand new and enterprise-pleasant candidate emerged in Brazil, the foreign money rallied to the $zero.27 degree towards the greenback and sugar discovered a low from which the worth staged a dramatic restoration.

Sugar rises by over 45%

After falling to a recent low in the course of the remaining week of September, the worth of the candy commodity took off to the upside.

Supply: CQG

Because the weekly chart illustrates, sugar rallied from lows of 9.81 cents to a excessive of 14.24 cents in the course of the week of October 22, a restoration of 45.2%.

With the close by March futures contract buying and selling on the 13.30 cents per pound degree on Tuesday, October 30, worth momentum has moved into overbought territory together with relative power. Open curiosity, the entire variety of open lengthy and brief positions within the sugar futures market declined from a report excessive of 1,058,041 contracts on August 24 when the tender commodity was on its strategy to the lows to 796,975 contracts on October 26, a fall of 261,zero66 contracts or 24.7%. It’s probably that development following shorts coated their danger positions as the worth of sugar fell under the 10 cents per pound degree.

In the meantime, weekly historic volatility rose to over 52% which is the very best degree since 2016 when sugar was on its option to its excessive at 23.90 cents. The sugar market has simply skilled a pointy and risky restoration which could possibly be an indication of a backside within the pricing cycle for the agricultural commodity.

A interval of consolidation can be wholesome

Over current periods, there are indicators that sugar futures have run out of some steam on the upside.

Supply: CQG

Because the every day chart of March futures exhibits, after the October 24 peak at 14.24 cents, sugar has posted losses for 4 consecutive buying and selling periods buying and selling at slightly below 13.30 cents on October 30. Worth momentum has crossed to the draw back together with relative power. Open curiosity which remained a low degree through the rally has begun to edge larger. On the similar time, the election of Jair Bolsonaro as President of Brazil final weekend brought on the ascent of the actual to stall at across the $zero.27 degree towards the U.S. greenback in a purchase the rumor and promote the information response to the election outcomes.

Technical help for the March sugar futures contract is now on the September 13 excessive at 12.55 cents per pound. After an over 40% rally in a single month, a interval of worth consolidation that absorbs the magnitude of the current transfer within the worth of the candy commodity could possibly be wholesome for the market. Sugar fell to a degree on the draw back that was unsustainable given rising international demand for all meals merchandise given rising wealth and inhabitants across the globe. At underneath 10 cents per pound, producers make considerably much less cash on their crops making the manufacturing of sugar a much less engaging enterprise. Moreover, the rise in open curiosity to a report degree was an indication that development-following shorts possible pushed the worth of sugar to a degree that was under equilibrium the place provide and demand fundamentals brought about the rejection of the current low.

The most constructive factor for the sugar market at this level can be to settle right into a buying and selling vary that’s larger than the current low.

The backside finish of a pricing cycle might result in a goal at slightly below 17 cents per pound

Sugar has an extended historical past as one of the risky commodities that commerce on the futures trade. Since sugar started buying and selling in 1971, the worth has traded from lows of two.29 cents to highs of 66 cents per pound. As an agricultural product, the climate can all the time create crop points that impression the trail of least resistance of the worth. Furthermore, the worth of sugar can impression costs as at very low ranges growers can scale back output in response to fewer income for his or her crops. Moreover, low costs have a tendency to extend demand which may eat away at inventories resulting in vital bottoms in a commodity.

Technical resistance for the sugar futures market now stands at the newest peak at 14.24 cents per pound. Above there, the subsequent degree will come into play at 15.49 cents on the weekly chart the place there’s a double prime courting again to the weeks of November 20 and 27 in 2017. Nevertheless, the last word goal for the sugar market might be a 50% retracement of the transfer from 23.90 to 9.81 cents per pound which stands at 16.86 cents. It’s possible that the sugar futures market might want to relaxation and construct trigger for a check of that worth over the approaching weeks and months after the numerous restoration that happened in October.

Buying and selling sugar with CANE and SGGB

Sugar has simply completed a interval the place each rally was a promoting alternative as the worth dropped from 23.90 in October 2016 to 9.81 cents in late September 2018. A buying and selling vary after the current worth restoration and rejection of the low under 10 cents per pound might improve buying and selling alternatives within the sugar futures market over the approaching weeks. Whereas sugar futures supply probably the most liquidity and alternatives within the candy commodity, the iPath B Bloomberg Sugar Complete Return ETN product (SGGB) and the Teucrium Sugar ETF (CANE) supply options for many who don’t dip their toes within the extremely-leveraged and risky futures area.

The fund abstract of SGGB states:

“The investment seeks return linked to the performance of the Bloomberg Sugar Subindex Total Return. The ETN offers exposure to futures contracts and not direct exposure to the physical commodities. The index is composed of one or more futures contracts on the relevant commodity (the “index components”) and is meant to mirror the returns which might be probably out there by means of (1) an unleveraged funding in these contracts plus (2) the speed of curiosity that might be earned on money collateral invested in specified Treasury Payments.”

SGGB invests in futures contracts which create a excessive correlation with the worth of sugar.

Supply: Barchart

March sugar futures on ICE rallied from 10.80 cents on September 27 to 14.24 cents on October 24, an increase of 31.9%. On the similar time, SGGB moved from $37.19 to $48.97 per share or 31.7% greater. SGGB has internet belongings of $25.78 million and trades a mean of 16,220 shares every day.

The fund abstract for the CANE ETF states:

“The investment seeks to have the daily changes in percentage terms of the shares’ NAV reflect the daily changes in percentage terms of a weighted average of the closing settlement prices for three futures contracts for sugar that are traded on ICE Futures US. The fund seeks to achieve its investment objective by investing under normal market conditions in Benchmark Component Futures Contracts or, in certain circumstances, in other Sugar Futures Contracts traded on ICE Futures or the New York Mercantile Exchange (“NYMEX”), or on overseas exchanges.”

As of October 29, the highest holding of CANE included:

Supply: Yahoo Finance

CANE’s efficiency was a mix of the three contracts that commerce on the ICE trade over the interval.

Supply: Barchart

CANE moved from $6.46 on September 27 to a excessive of $eight.15 on October 24, an increase of 26.2%. The March 2019 contract rose by 31.9 %, whereas the Might 2019 contract moved from 10.94 to 14.29 or 30.6%. The March 2020 contract moved from 12.12 to 14.82 or 22.three%, so the typical rise of the three contracts was 28.three%, 2.1% above the return provided by the CANE ETF product.

CANE has internet belongings of $15.09 million and trades a mean of 88,715 shares every day.

Whereas SGGB provided a greater return over the interval, I proceed to favor CANE for 2 causes. At the start, CANE is an ETF whereas SGGB is an ETN. ETNs current a further degree of danger as they require the customer to imagine the credit score danger of the issuer of the product. Second, CANE’s efficiency represents a mix of three futures contracts which may clean the outcomes and restrict a number of the roll-danger within the extremely risky sugar futures market.

On Wednesday night as I benefit from the costumes of the youngsters who ring my doorbell and fill their luggage with sweet crammed with sugar, I will probably be fascinated with my youngsters once they have been small and the sugar rush that adopted Halloween over the approaching days. I will even be fascinated by my subsequent transfer within the sugar market which I anticipate will settle right into a buying and selling vary and supply numerous shopping for and promoting alternatives over the approaching weeks.

The Hecht Commodity Report is among the most complete commodities studies out there in the present day from the #2 ranked writer in each commodities and valuable metals. My weekly report covers the market actions of 20 totally different commodities and supplies bullish, bearish and impartial calls; directional buying and selling suggestions, and actionable concepts for merchants. Greater than 120 subscribers are deriving actual worth from the Hecht Commodity Report.

Disclosure: I/we’ve no positions in any shares talked about, and no plans to provoke any positions inside the subsequent 72 hours.

I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it (aside from from In search of Alpha). I’ve no enterprise relationship with any firm whose inventory is talked about on this article.

Further disclosure: The writer all the time has positions in commodities markets in futures, choices, ETF/ETN merchandise, and commodity equities. These lengthy and brief positions have a tendency to vary on an intraday foundation.

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