“We have seen the longest bear market in sugar for quite some time,” said Michael McDougall, director of commodities for Société Générale in New York. “It’s like a large ship that takes a lot to turn. But it looks like it’s finally beginning to turn.”

Sugar mills in Brazil are directing more cane production to ethanol for fuel blending, thanks to government incentives that make prices more attractive compared with sugar.

After a weak domestic crop season, import demand from China has been strong, jumping 55% to 3.75 million tons in the first nine months of the year.

Singapore-based trading house Wilmar International Ltd. took physical delivery of $1 billion worth of sugar through the financial market so far this year, fanning speculation about increased Asian appetite for the sweetener.

But in a sign that gives some investors pause, sugar producers and processors are placing the largest bets in two years that prices will fall.

“Demand is just not there,” said Bruno Lima, head of sugar and ethanol at brokerage INTL FCStone in Brazil, who found raw sugar offered at a deep discount to the futures prices traded in New York during a recent tour of mills in Santos.

Eoin Treacy's view

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Commodities don’t go to zero but sugar prices trended consistently lower for 5 years, dropping over 60% in the process. That is ample time to create a supply response and Brazil’s decision to mandate greater ethanol production is a sign low prices are also creating a demand response. 

Last week’s margin hike on sugar contracts saw prices pull back sharply but yesterday’s upward dynamic from the region of the 200-day MA is a signal demand is beginning to return to dominance. This is the first time sugar has found support in the region of the trend mean since 2011 and a sustained move below it would be required to question medium-term recovery potential. 

Elsewhere in the soft commodity sector cocoa remains a relative strength leader despite the prognostications of some major consumers. The London listed contract moved to a new closing high today and while somewhat overbought in the very short term, a sustained move below £2100 would be required to question medium-term scope for continued upside. 

Orange Juice continues to surge higher on yesterday’s weak crop data from Florida and a clear downward dynamic would be required to check momentum.

At the other end of the spectrum platinum fell for the 10th consecutive session and while oversold in the short term, a clear upward dynamic will be required to check momentum.