Position: Short Sugar via the ETN SGG
We added a short position in sugar via the ETN SGG in the Hedgeye Virtual Portfolio. This move may seem surprising as we have been frequent buyers of sugar, which is up +28.6% over the last six months. We have entered five long positions in SGG since June of last year, with our cumulative performance netting a +22.14% gain while riding an inverse correlation to a weakening dollar.
However, that correlation has changed quickly. Although sugar has a -0.79 inverse correlation to the US Dollar over the past year, it has a +0.24 positive correlation to the dollar over the last six weeks. As a reminder, we remain bearish on the US Dollar over all three of our durations: TRADE, TREND, and TAIL. While sugar’s inverse correlation to the US Dollar is broken, we see this as a nice opportunity to be short the soft commodity.
This comes against a bearish supply backdrop in which the world is well-stocked with sugar – one of the few soft commodities that we can currently say that about. The USDA recently projected world sugar production in the 2010-2011 growing season to be 8% greater than the 2009-2010 season, totaling 164 million tonnes.
A short position in SGG was added into the portfolio at $84.63. From a quantitative perspective, sugar is broken and bearish on the immediate term TRADE and intermediate term TREND durations, with upside resistance at $90.92 and no downside support.