Chart 1: Non-Commercial Net Length vs ICE Sugar No.11
Source: ADMISI Sugar Desk
The chart above shows the fund positions held over the past five years against the Sugar No. 11 price.
In the last 10 years the funds have continued to increase their gross and net positions lurching from huge long to huge short positions. Their record net long and short positions have been set over the past couple of years, emphasising the continuing growth in the funds. Back in September 2016 they built their largest net long position of 290,985 lots pushing prices above 23 cents. Exactly two years later they hit their largest net short position of 195,701 lots plunging prices below 10 cents for the first time since mid-2008. Indeed, all the major moves of the past 20 years have been dictated by the funds. The recent 440 point rally in sugar was essentially caused by the funds covering their record short position. Once they had squared their net position prices dipped over 170 points suggesting there was limited fundamental reasons for the rally.
There has always been a rather tempestuous relationship between the commercial users of the market and the funds. The commercials understand the need for speculation but it took a long time for traders to get used to the burgeoning size and influence of the funds. Nowaday most commercial traders have only ever known markets dominated by the funds. They have learnt to use them to their advantage. It is certainly true that the funds exaggerate price moves allowing commercial traders to often price at far better levels than the underlying fundamental picture would suggest. They also add liquidity to markets and cause price moves on the back of macro and technical considerations when the fundamental picture is unchanged and boring.
The fund’s influence has grown enormously over the past 30 years and (like it or not) will continue to be the prime price mover in markets such as NY Sugar. However, it does mean that the markets are never likely to be range-bound for long and add excitement to markets that might, otherwise be flat and dull.
Howard Jenkins E:
howard.jenkins@
admisi.com T: +44(0) 20 7716 8598
15 | ADMISI - The Ghost In The Machine | November/December 2018
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36
