Sugar has rallied more than 50% since the February lows, primarily based on supply concerns. There are current weather issues in South America and Southeast Asia as well as structural issues that will see the sugar market shift from surplus to deficit this calendar year. The common news reports regarding global El Nino issues combined with speculators increasing need to own something in a 0% yield investment landscape has led to a new large speculator record long position in the #11 sugar futures contract, according to the weekly Commitments of Traders report. We believe the record position is unsustainable.
Due to the general increase in volatility over the last few weeks across most of the financial markets, we’re going to shift our focus towards the grain markets as the financials sort themselves out. The grain markets had a weak year in 2015 as global deflation combined with good weather simply made everything cheaper. However, as a direct result of these cheaper prices, we’re now seeing reports of land expected to be left fallow this year as farmers and would be agricultural entrepreneurs shift their focus towards more fertile ground.
A brief review of our primary El Nino forecast shows considerable agreement that this year’s El Nino effect will be similar if not, stronger than the El Nino event of 1997. You can read the summary of the meteorological information in our first piece on this topic, “2015 El Nino and the U.S. Grain Markets.” This week, we’ll look at the anticlimactic chart evidence that suggest the media may create a bigger threat than reality suggests is warranted. Headlines draw readers. Readers support advertising. Headline writers get paid. As a trader, definitely not a writer, my goal is to profit from projected price action. It may not be glamorous. It may not draw readers. But, this is the primer you need for the next 18 months of global grain trading.
The National Oceanic and Atmospheric Administration (NOAA) has repeatedly stated the growing case for the 2015-2016 El Nino event. While much has been discussed in the headlines, very little of the conversation has focused on the commodity price impact that the most significant El Nino weather pattern since 1997 could have on U.S. crops. This week, we’ll begin our look at how the U.S. grain markets performed during 1997-1998 El Nino and continue this line of thought through the global grain markets next week before finishing this segment with a look at El Nino’s impact on energy prices.