The prices of most food commodities have dropped significantly from the highs seen during the shortages of 2022. Wheat is down 60%, coffee has fallen by 30% and soybeans are trading 25% lower. But there’s one commodity, whose price just kept rising and now hovers near levels last seen more than a decade ago. We’re talking about sugar.
The price of sugar barely held above $9/lbs during the COVID-19 panic in the spring of 2020. Earlier this month, however, it briefly exceeded the $28 mark. In other words, sugar has more than tripled in price in less than four years. Coupled with the near-doubling in the price of cocoa over the past 12 months, this explains why your favorite chocolate has gotten more expensive.
But let’s get back to sugar. After seeing the price of anything tripling over such a relatively short period of time, traders are often tempted to extrapolate the uptrend into the future. This is a risky strategy under any circumstance. Here, we think it is simply wrong. The Elliott Wave chart below explains.
The weekly chart of sugar reveals that a five-wave impulse has emerged from the 2020 low at $9.18. The pattern is labeled 1-2-3-4-5 and, according to the theory, means that we should expect a three-wave correction. If this count is correct, we can expect a notable retracement back to the support near $20 in wave (2/b), before the uptrend can resume. In addition to the mid-term negative Elliott Wave setup, there is also a bearish RSI divergence between waves 3 and 5, which highlights the bulls’ exhaustion.