The sugar market is set for a period of sharp volatility, thanks to heavy fund buying, and traders should be ready for a “big washout”, warns Jonathan Kingsman, founder of the sugar analysis group Kingsman.
Mr Kingsman told Agrimoney that the sell-off could be sparked when the last short positions left the market.
“I don’t know when it’s going to happen,” he said, but suggested that the last of the shorts could come when producers start to get bullish.
Fund longs, producer shorts
Markets have been nervously eyeing the scale of fund buying, with ideas that the rally in raw sugar markets could come to an end when there are no more fund longs to add.
Data from the CFTC regulators has shown an explosive growth in hedge fund long positions in the New York raw sugar market, reflecting the long-term bullish implications of a looming market deficit, with production in every major producer apart from Brazil set to fall, thanks to low returns for producers and dry weather in Asia.
But just as important as the size of the fund long could be the size of the producer short.
Shorts get squeezed out
Mr Kingsman said the short positions, which were held primarily by sugar producers, were in the process of being squeezed out of the market.
The rally in sugar prices has put short positions in a difficult position, leaving them struggling to make margin calls.
“When those last shorts are forced out of the market, it could start a washout,” he warned, speaking on the sides of Agrimoney Investment Forum in London.
(Source – http://www.agrimoney.com/news/sugar-producer-pain-could-cause-market-washout—kingsman—9645.html)