My sugar position has turned profitable to my surprise. I broke my rules when making this trade by buying a product that was heading straight down hill with no bottom in sight. I will add to the position if it crosses above the 50 day moving average.
My reasons for this trade are based on the theory that prices are bottoming as the fundamentals appear the most bearish. I also see a couple factors that may cause this market to tighten in the near future. The USDA reported that in the 08- 09 growing season the world sugar market may finally go into a deficit after years of large surpluses. Other private forecasters have come out with reports saying the market will stay in a small surplus.
I support the deficit outlook because ethanol demand in Brazil will be higher than expected and farmers worldwide will plant more profitable crops in place of sugar cane. Ethanol in Brazil sells for $2.65 a gallon compared to gasoline at $5.65 gallon. Most cars in Brazil can run on ethanol, gasoline, or a blend of the two. As long as oil prices stay relatively higher then ethanol, demand will stay supported. The Brazilian Sugar Cane Industry Association is actively building new ethanol plants and will open gas stations that only sell ethanol fuel in the future. Furthermore, Brazil is aggressively seeking export markets for sugar based ethanol.
Cheaper ethanol outselling gasoline in Brazil
Brazil seeing sweet profit from sugar cane-based ethanol
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