Sugar prices have reversed course and fallen sharply, as I predicted on November 21. According to TradingView, sugar has plunged by almost 205 from the year-to-date high of $28 to a low of $22.50. It is now hovering at its lowest point since June.
Sugar has been in a strong uptrend in the past few months as investors looked at the supply and demand dynamics in the industry. A key challenge has been the ongoing drought issues in key countries like Mexico, which is a major producer.
The country’s sugar production has dropped by about 15% this year. In the latest WASDE report, the USDA warned that Mexico’s supplies for the 2023/24 season will drop to 5.23 million tons. The statement added:
“October rainfall likely benefitted the crop in Veracruz, Jalisco, and southern states but the effect will not likely manifest until later in the season. The effect of extreme drought conditions in San Luis Potosí, Tamaulipas, and Michoacan are unlikely to be reversed.”
Mexico is not alone. In India, a key sugar producer, output has dropped by about 8% to 33.7 metric tons because of a prolonged dry weather season. Other countries like Thailand have seen weaker production in the past few months.
Recently, however, sugar prices have dipped as investors react to the positive supply metrics in Brazil. A recent report by Bloomberg noted that tens of vessels were waiting for sugar shipments in Brazil ports.
The sugar price dip is a sign that the market believes that Brazil will solve the logistic challenge and bring the much-needed sugar to the market. Higher supplies usually leads to lower prices.
Sugar price prediction
In my last article on sugar, I warned that the bullish trend was ending. I cited the rising wedge pattern that had been forming for a few months. This wedge reached the confluence point, leading to a strong bearish breakout.
Now, sugar has crashed below the important support level at $22.22, the lowest swing on August 23rd. It has also plunged below the 50-day and 200-day Exponential Moving Averages (EMA).
Sugar has also slipped to the 50% Fibonacci Retracement level and the lower side of the Andrews Pitchfork tool. Therefore, the outlook for sugar is still bearish, with the next point to watch being $20. If this happens, it means that sugar will drop by about 11% from the current level.
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