Sugar prices are hovering near their highest level in years as concerns about supply continues. Data compiled by TradingView shows that the price of sugar was trading at $27.65, a few points below the year-to-date high of $28. It has surged by more than 61% from the lowest point in December last year.
Supply concerns remain
Sugar and other agricultural commodities like orange juice, lumber, palm oil, and olive oil has been in a strong uptrend this year. This performance has diverged with other popular commodities like corn, wheat, and soybeans that are languishing.
The main reason for sugar’s jump is that there are concerns about supply as the impact of climate change continues. One major challenge is in Mexico, where the current season is not going on well.
According to the US Department of Agriculture (USDA), supply from Mexico is struggling because of drought conditions in key areas like Veracruz and Quintana Roo. The department expects that production will drop by 245k metric tons to over 5.33 million tons.
Rainfall in key sugarcane planting areas is expected to be about 23% below normal, which will affect the yield. The USDA expects farms in Mexico to be about 61.3 metric tons per acre, lower than 2019’s 62.9.
The woes in Mexico will ne partially offset by performance in the United States. USDA expects that the US supply will grow by 12,345 short tons, helped by the performance in Louisiana. The WASDE report also added:
“TRQ raw sugar imports are down 160,573 STRV due to the Philippines announcement that all production would be allocated for domestic uses and none for export.”
Sugar prices forecast
Turning to the daily chart, we see that sugar prices have been in a tight range in the past few weeks. They have formed what looks like a double-top pattern around $27.57. In price action analysis, this pattern is one of the most bearish ones.
Sugar has also formed a rising wedge pattern, which is shown in blue above. Like the double-top, this pattern is a bearish signs. This is notable now that the wedge is nearing the confluence level.
Therefore, the outlook for sugar prices is bearish because of the two patterns. If this happens, there is a likelihood that the price will drop to about $27. A break above the year-to-date high of $28 will point to more upside.
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