Check it: Sugar prices are soaring like a baseball at the end of Babe Ruth's bat. On October 13, 2010, the market reached its highest level in eight months.
And, according to the mainstream financial experts, sugar's surge is a result of a "perfect storm" of bullish fundamentals. Below are the top three:
- Rising corn prices: The grain is used in the production of biofuel ethanol. If its prices rise, then the demand for sugar (the other feedstock used in alternative fuel) goes up.
- Adverse weather conditions in major sugar producing countries.
- And, an October 12 US Department of Agriculture report revealing a 3.2% decrease in Brazil's (the world's largest sugar producer) sugar-cane harvest -- AND sugar shipments from Thailand (the second largest exporter) will drop by 20%.
The problem is, all of these factors are at best short-sighted explanations for a long-term scenario that has been underway in sugar for two straight years. See, the uptrend that has carried sugar to its current eight-month high got started in late 2008.
At that time however, the market's fundamental backdrop did little to support a pending bull run. On this, the following December 3, 2008 news item captures the sour mood surrounding sugars -- and the commodity sector in general -- future:
"Sugar Falls As Recession Drives Commodities To Six Year Low... Signs that the global recession is deepening is eroding demand for raw materials," and sending sugar to three month low.
Sugar's powerful uptrend since then makes no sense in the "fundamentals-drive-financial-trends" scheme of things -- especially as news of the recession's end wasn't made official until September 21, 2010.
The market's performance does, however, fit perfectly into the Elliott wave picture. In the October 12 Daily Futures Junctures, EWI's chief commodity analyst and long-time editor Jeffrey Kennedy presents the following close-up of sugar that offers an objective labeling of the market's action since 2008: A contracting triangle in wave (4) ended AND a powerful wave (5) rally began.
For those of you new to our pages, a contracting triangle is a five-wave overlapping pattern labeled A through E. Triangles always occur in the position prior to the final actionary wave in the pattern of one larger degree (wave 4 of an impulse or wave B of an ABC), followed by one final thrust.