Sugar may be bad for you

Key points

• Sugar has a long-term tendency to show weakness in the first half of the year
• This market recently entered a typically unfavorable seasonal period while already in an established price downtrend
• While there are never any guarantees, this confluence of factors often breeds exploitable opportunities

Entering a seasonally unfavorable period

The seasonally unfavorable period marked by the red box in the seasonal chart above extends from the close of TDY #35 through the close of TDY #87. Note that the contract we follow from Bloomberg tracks spot sugar futures.

For 2024, this period extends from the close on 2024-02-21 through 2024-05-06.

The chart below highlights the propensity for sugar futures to show weakness from February through May.

At present, price action appears to be confirming the unfavorable seasonal trend. The chart below displays sugar futures versus a 70-day exponential moving average. After rallying into late 2023, sugar futures plunged in December and attempted to rally into January before rolling over recently. As long as sugar holds in a price downtrend, aggressive futures traders should be looking at the potential to play the short side.

Sugar performance TDY #35 through TDY #87

The chart below displays the cumulative hypothetical gain from holding long one Sugar futures contract only during TDY #35 through TDY #87, every year since 1971.

Two important things to note:

• The chart above highlights the clear long-term tendency for sugar price weakness during this period
• Note the upward spike at the far right - in 2023, sugar experienced its most significant gain during the TDY #35 through TDY #87 period - a massive gain of almost over $5,300

The table below summarizes performance results during this unfavorable seasonal period.

The good news is that the tendency for weakness is pretty unmistakable. The bad news is that there is no guarantee from year to year. The massive rally in 2023 reminds us of the need for a stop-loss order to limit risk to a manageable amount (regardless of what any indicator or factor suggests).

What the research tells us…

Sugar is a highly cyclical market. It tends to show weakness in the first half of the year and strength during the second half. This market is now within a typically unfavorable seasonal period, AND price action is presently in a downtrend. This configuration often results in significant trading opportunities. That said - and as always - there are never any guarantees in the market. As long as price action remains weak (however a given trader may define that), history suggests that traders focus on the short side of the sugar market. Also as always, no seasonal or price trend ever relieves an individual trader of the responsibility to allocate capital intelligently and to manage risk ruthlessly.