Insight Focus

The fundamental picture has shifted, and speculators are continuing to build their short position, pushing prices lower. Will the market fall below 18c/Ib?

Raw sugar is currently trading around 18-18.5c/Ib, and we believe that speculators are partly responsible for this.

Over the past few months, speculators have shown little interest in the sugar market. They are now in the process of building a short position in raw sugar, indicating a significant change in sentiment that is pushing the market lower.

People often examine speculators’ long positions to gauge the current market sentiment. While these positions can provide valuable insights into whether we’re in a bull market, they may not accurately reflect a bear market. 

Instead, we should take a look at the gross speculative short.

From the chart below, we can see that following the collapse of No.11 in December, speculators have aggressively sold raw sugar. They are now net short the sugar market for the first time since October 2022, and with over 100k lots of new short positions added since the start of April, they now hold 23% of total open interest.

One thing to bear in mind is the scale of today’s speculative short. While it hasn’t reached levels normally seen in bear markets (>30%), this is the first time they’ve held such a large short position in the market since 2019. 

If we bring back the chart from earlier and plot when the specs were short of the market, we can clearly see that the spec short is often a good indicator of when we’re in or starting to enter a bear market:

With the changes to the fundamental picture and news regarding increased supply, this could encourage speculators to continue to build their short position, thereby pushing the market lower.

That being said, we mustn’t rule out the potential for the market to move upwards. The market is still heavily reliant on CS Brazil for supply, and by H2’24, 80% of supply will be flowing through Santos.

This means that the market is one adverse event away from moving back upwards to 22c.

Tabasoom Watak

Tabasoom joined CZ in August 2022 as an Analyst Intern, shortly after graduating from King’s College London in July with a BSc in Global Health and Social Medicine (with Pharmacology). She is responsible for expanding CZ’s knowledge and expertise in biomass & starches, as well as delivering the sugar premium package on CZ App.

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