SB SPECIALIST · Softs / Term Structure
Z3114 – [SB] Carry L3-L1 Term Structure Signal
Sugar front-month-to-third-nearby carry extremes mark physical-supply pricing peaks and troughs; the L3-L1 spread transmits contrarian cycle-inflection signals to Sugar No. 11 futures at 60-day horizons via the term-structure mean-reversion channel.
At a glance
IN-SEASON · ACTIVE
Current reading
+0.660
SEASONAL STATE
IN-SEASON · ACTIVE
ICE daily settlement during Brazil crush window drives signal refresh.
Signal state
Extreme POS
26 days in Healthy phase
Updated
Nov 04, 2026
ICE daily settlement
Sample
26-year window
Daily cadence; 2000 onward
As of Nov 04, 2026. Updated nightly.
SIGNAL OVERVIEW
Sugar No. 11 term structure captures physical-supply balance through the shape of the futures curve. The spread between the third-nearby (L3) and first-nearby (L1) contracts prices roughly a 6-month carry. The naive mechanism says backwardation (L3 below L1) signals bullish supply tightness and contango (L3 above L1) signals bearish comfortable supply, but the empirical pattern in Sugar runs the opposite way. Backwardation regimes historically mark supply-shock pricing peaks with subsequent mean reversion; contango regimes mark comfortable-supply cycle-low bases with subsequent recovery. Daily Spearman IC against Sugar No. 11 forward 60-day returns reflects this contrarian pattern through the phase-conditional edges: Phase +1 (Backwardation) delivers minus 1.93 pp edge below baseline on 37 percent sample share; Phase -1 (Contango) delivers plus 2.55 pp edge above baseline on 43 percent sample share. 4.48 pp contrarian Phase +1 minus Phase -1 spread.
LIVE CHART
SB Carry L3-L1 Term Structure Signal
What the chart is showing right now. The dark line is the ICE Sugar No. 11 L3-L1 term structure z-score, tanh-bounded. Positive composite means backwardation (historically marks supply-shock pricing peaks with subsequent mean reversion); negative means contango (historically marks comfortable-supply cycle-low bases with subsequent recovery). The bronze line in the middle panel is ICE US Sugar No. 11 first-nearby. The bottom panel tracks the trailing 252-day Spearman information coefficient between the composite and Sugar forward 60-day returns.
CHART PLACEHOLDER
Live chart renders here once the Node.js data layer is wired. Until then this slot shows a static placeholder.
COMPOSITE
+0.660 / tanh
STATE
Extreme POS
PHASE
+0.87
PHASE +1 EDGE
-1.93 pp bearish
PHASE -1 EDGE
+2.55 pp bullish
TODAY’S PLAYBOOK READING
STATE
Extreme Pos
STATE AND HISTORY
Backwardation firing at composite +0.660, 26 trading days running in Neutral phase. Phase +1 (Backwardation) delivers minus 1.93 pp edge below baseline. Phase -1 (Contango) delivers plus 2.55 pp edge above baseline. Contrarian cycle-inflection pattern.
THE CARRY MECHANISM
Sugar L3-L1 captures roughly 6-month carry across front-end of curve. Empirical pattern is contrarian: backwardation extremes (L3 below L1) mark supply-shock pricing peaks with subsequent mean reversion; contango extremes (L3 above L1) mark comfortable-supply cycle-low bases with subsequent recovery. Brazil crush season drives most L3-L1 variation.
HOW TO POSITION
Term structure overlay for Sugar via L3-L1 carry channel. Backwardation firings mark supply-shock peaks with mean reversion. Contango firings mark cycle-low bases with subsequent recovery. Pair with Brazil CHIRPS supply, CFTC positioning, ethanol parity, and ICE Europe white sugar positioning.
WHAT THE CHART SHOWS
The composite sits at +0.660 in the Backwardation band. Sugar L3-L1 has moved into backwardation through late 2026 consistent with supply-shock pricing-peak territory via the contrarian cycle-inflection pattern.
TOP INPUTS FIRING
- Primary composite +0.660 State Backwardation, 26 days running in Neutral phase.
- Sugar L3-L1 backwardation Raw z-score +0.87; ICE Sugar No. 11 L3-L1 spread has moved into backwardation through late 2026 — Phase +1 bearish-tail territory per empirical pattern.
- Contrarian cycle-inflection pattern Phase +1 vs Phase -1 spread 4.48 pp contrarian. Backwardation extremes historically mark supply-shock pricing peaks with subsequent mean reversion.
THE TAKEAWAY
What this means for you today
THE CARRY CALL
Composite +0.660, Backwardation. Sugar L3-L1 has moved into backwardation through late 2026 consistent with supply-shock pricing-peak territory. Signal firing in Backwardation bucket for 26 days; forward 60-day edge in Phase +1 historically runs minus 1.93 pp below baseline via mean reversion.
THE EMPIRICAL CONTEXT
Phase +1 (Backwardation) delivers minus 1.93 pp edge below baseline; Phase -1 (Contango) delivers plus 2.55 pp edge above baseline. 4.48 pp contrarian spread. Signal functions as cycle-inflection marker rather than direct directional driver.
THE HONEST CAVEAT
Sugar term structure is endogenous (L3-L1 can co-move with target); supply-side exogenous signals (Brazil CHIRPS) mitigate endogeneity but do not eliminate it. Contrarian polarity means readers expecting "backwardation = tightness = bullish" will find the empirical pattern opposite; use for cycle-inflection identification not direct directional positioning.
THE REGIME MAP
The three phases, forward returns and sample share
Computed from 9,012 post-warmup trading days (2000 onward). Signal is empirically contrarian; backwardation marks supply-shock peaks with subsequent mean reversion and contango marks cycle-low bases with subsequent recovery.
| State | Phase | Share | Fwd 60d | HAC t | Edge vs baseline | Last firings |
|---|---|---|---|---|---|---|
| Backwardation TODAY | +1 | 36.8% (3314 d) | -0.20% | -1.93pp | Sep 2026, Feb 2026, Sep 2024 | |
| Flat Carry | 0 | 20.6% (1852 d) | -0.08% | -1.82pp | Feb 2026, Sep 2025, Feb 2025 | |
| Contango | -1 | 42.7% (3842 d) | +4.29% | +2.55pp | Feb 2026, Feb 2025, Jul 2024 |
The historical pattern
Signature episodes in the 26-year sample
What this measures
Z-score of ICE US Sugar No. 11 L3-L1 term structure (third-nearby minus front-nearby spread, approximately 6-month carry) on a rolling window, tanh-bounded. Positive composite equals backwardation (deferred below nearby). Signal empirically contrarian on Sugar forward 60-day returns. Target ICE US Sugar No. 11 first-nearby back-adjusted close.
Why it matters
Why Sugar carry matters
Sugar L3-L1 captures roughly a 6-month carry across the front end of the curve. The spread prices physical-supply tightness directly; backwardation indicates physical scarcity and contango indicates comfortable supply. Brazil Center-South crush season drives most L3-L1 variation. The empirical pattern is contrarian: backwardation extremes historically mark supply-shock pricing peaks where the market has already priced the scarcity, and contango extremes mark comfortable-supply cycle-low bases where price has corrected below equilibrium.
How to use this signal today
Term structure overlay for Sugar via the L3-L1 carry channel. Backwardation firings mark supply-shock pricing peaks with subsequent mean reversion (2022-23 post-rally peak and 2010-11 supercycle peak as benchmarks). Contango firings mark cycle-low bases with subsequent recovery (2018-19 as benchmark). Pair with Brazil Center-South CHIRPS (supply fundamental), CFTC positioning (sentiment), crude-ethanol parity (cane-to-ethanol vs sugar mix), and ICE Europe white sugar positioning.
Risk overlay
Non-overlap IC sign-consistent but not independently significant. Sugar term structure is endogenous (L3-L1 can co-move with target); supply-side signals mitigate endogeneity but do not eliminate it. Contrarian polarity means readers expecting "backwardation = tightness = bullish" will find the empirical pattern opposite — the signal is a cycle-inflection marker, not a direct directional driver.
Signal consumers and siblings
Not investment advice · The analysis on this page is informational and educational. Signal readings, historical case figures, and empirical statistics are derived from publicly available data and are provided without warranty. Hypothetical performance results have inherent limitations, including the benefit of hindsight. Readers who intend to trade should consult a licensed investment professional and see the research brief for the full disclaimer.
Last refreshed Nov 06, 2026 12:35 PM ET