Sugar has been in production since ancient history. When the crop was first discovered, it was not plentiful, or cheap to grow and harvest, so many populations used honey as a sweetener instead. However, during various agricultural revolutions, and major improvements in farming techniques and technology, sugar became a widely used commodity. As far as food is concerned, the term “sugar” most often refers to sucrose, which comes from sugarcane or sugar beet. Though this sweet crop is most known for giving our food a more enjoyable flavor, it has a wealth of other uses, including lightening skin discoloration, and alternative fuels. Roughly 20% of the total supply of sugar will end up in what is known as the “dump market”, where governments provide subsidies for producers to sell their surplus supplies for a price much lower than the cost of production. Sugar has become a popular buy among investors, as significant volatility in spot prices creates opportunities to capture material returns over a relatively short period of time. While sugar may seem like a strange investment, it is an international commodity just like crude oil or copper [see also The Guide To The Biggest Companies In Every Major Commodity Sector].
Physical Properties And Uses Of Sugar
Sugar is grown in two different ways, through either sugarcane or sugar beet. Sugarcane grows in stalks that can reach between six and nineteen feet high and is native to warm temperate regions such as tropical Asia and South America. Sugarcane produces sugar, molasses, rum, and ethanol among other byproducts. The other form of sugar, sugar beet, is a plant whose root holds a large amount of sucrose. The crop can be grown in a wide variety of temperate climates, with Europe leading the world in production.
Sugar is most often used in food-based products, but also has major role in ethanol production as well as various non-conventional uses. Brazil leads the world in ethanol production for sugar, which many believe is more efficient than ethanol derived from corn. Sugar is also used in numerous home remedies, such as keeping certain items fresh, prolonging the life of flowers in vases, and even trapping insects [see also Commodity Investing: Physical vs. Futures].
Sugar Supply And Demand
Sugarcane production is dominated by emerging markets, with Brazil, India, and China being the top three producers in the world. But by far, Brazil is the bellwether producer when it comes to sugarcane, nearly doubling the production of second ranked India. As such, any trends or production snags in Brazil will be major movers for the price of this commodity.
| Top Sugarcane Producers: 2008 | ||
| Rank | Area | Production (Int $1,000) |
| 1 | Brazil | 13,299,034 |
| 2 | India | 6,725,632 |
| 3 | China | 2,482,336 |
| 4 | Thailand | 1,526,628 |
| 5 | Pakistan | 1,194,856 |
| 6 | Mexico | 1,061,490 |
| 7 | Colombia | 738,608 |
| 8 | Australia | 677,540 |
| 9 | Argentina | 622,061 |
| 10 | Indonesia | 540,020 |
| Source: Food And Agriculture Organization Of The United Nations | ||
Sugar beet’s producers are far different from those of sugarcane. The production of sugar beet is dominated by developed markets, with France, Russia, and the U.S. accounting for the top three producers of the sweet commodity. Investors should note that sugarcane production far exceeds that of sugar beet, and will be a much bigger price mover than beet producers [see also Invest Like Jim Rogers With These Three Agriculture Stocks].
| Top Sugar Beet Producers: 2008 | ||
| Rank | Area | Production (Int $1,000) |
| 1 | France | 1,394,998 |
| 2 | Russian Federation | 1,318,389 |
| 3 | United States of America | 1,122,488 |
| 4 | Germany | 1,058,390 |
| 5 | Turkey | 712,927 |
| 6 | Ukraine | 402,072 |
| 7 | Poland | 401,156 |
| 8 | China | 370,250 |
| 9 | United Kingdom | 345,225 |
| 10 | Netherlands | 240,207 |
| Source: Food And Agriculture Organization Of The United Nations | ||
As far as consumption is concerned, emerging markets also lead the way, with India and China ranking as the top two consumers, with the U.S. not far behind.
Sugar Price Drivers
As a global commodity, the price of sugar is impacted by a number of factors, and is often subject to significant price swings in a relatively short period of time. The major price drivers of sugar include:
- Weather Conditions: Like most agricultural commodities, sugar is subject to adverse weather conditions. Any unforeseen or extreme weather pattern can set off supply issues sending sugar prices soaring.
- Geopolitical Tensions: With the major sugar-producing nations being emerging markets, the supply of this sweet crop can be easily bottlenecked by the combustible political situations that often characterize these nations. Moreover, trade relations between countries can have a big impact on the cost of sugar.
- Regulatory Environment: In order to protect sugar farmers in the U.S., the government imposes quotas that limit the amount of tariff-free sugar that many major users can import each year, except from Mexico. To the extent that current import quotas remain in place, there will be a floor on sugar prices that prevents them from falling too far. Also, subsidies that cover farmers in the “dump market” could have a major impact if the policies change.
- Relative Commodity Prices: In many sugar-producing countries, such as Brazil and India, farmland used to grow sugar can be used to harvest a number of other commodities as well. If the prices of these other goods (bananas for example) rise considerably, flexible farmers will abandon sugar in favor of crops that will fetch higher prices.
- Ethanol: With alternative energies becoming more popular, many may turn to sugar-based ethanol as a substitute for fossil fuels. In Brazil, a significant portion of sugar is used in ethanol production. To the extent that ethanol demand increases in the future, so too will the demand for sugar.
Investing in Sugar
Sugar’s appeal as an investment stems from its wide use throughout the globe. As such a popular commodity, investors can use sugar to make plays against strong or weak economies. Sugar investments can also be used to make a play on weather conditions and government policies around the world as well [see also Why Commodities Belong In Your Portfolio].
Sugar futures are traded under the name of Sugar No. 11, where one contract represents 112,000 pounds of raw cane sugar. Sugar No. 11 is traded on the Chicago Mercantile Exchange under the symbol YO, with prices quoted in U.S. Dollars per pound, and a minimum fluctuation of $0.0001 per pound. Trading is conducted in the March, May, July, and October cycle for the next 24 months. All contracts are subject to the rules and regulations of NYMEX.
Trading terminates on the day immediately preceding the first notice day of the corresponding trading month of Sugar No. 11 futures at ICE Futures U.S.
There are currently two ETFs that offer exposure to sugar, with one fund being a pure play option, while the other offers broad exposure to soft commodities.
- iPath Dow Jones-UBS Sugar Total Return Sub-IndexSM ETN (SGG) – 100%
- iPath Dow Jones-UBS Softs Total Return Sub-IndexSM ETN (JJS) – 28%
Investors can also gain indirect exposure to sugar by investing in the top producing nations. The following emerging market ETFs have the highest sugar production in the world, and as such they may be heavily affected by movements in the price of this sweet commodity.
Resources On Sugar Investing:
[...] One of the biggest commodity winners of the session was sugar, as the benchmark sugar no. 11 contracts spiked a healthy 6.7% on the day, the biggest jump the sweet commodity has seen since October of 2010. The most likely culprit for the jump came from one of the world’s largest sugar producers, Brazil. An industry group reported that the sugar output of Center South Brazil is expected to drop as much as 1 million metric tons this season. As analysts from around the world have grown weary of the potential sugar output, and a possible shortage, prices skyrocketed. “Persistently weak crushing data out of Center South Brazil has supported prices as the market begins to price in a full-year cane crush below 540 million metric tons,” said one Morgan Stanley analyst, suggesting that investors may see elevated sugar prices throughout the near term [see also Ultimate Guide To Sugar Investing]. [...]
[...] One of the biggest commodity winners of the day was sugar, which saw healthy gains due to an increase in demand from India. In light of upcoming festivals, this emerging nation has stepped up its planned purchases of the sweet commodity, driving prices up as investors try to cash in on the robust consumption that this market exhibits. India is also the second-largest producer of sugar cane, nearly tripling the output of its neighbor China, suggesting that any exports from the nation could be diminished over the next few weeks as well. Overall on the day, sugar futures soared 3.2% as the high demand pushed prices close to the 30 cents a pound level [see also Ultimate Guide To Sugar Investing]. [...]
[...] The biggest commodity winner of the day was sugar #11 for the second straight session, giving the sweet commodity its best two-day run since October of 2010. The massive jump came from a low supply report from Brazil, the world’s largest producer of sugar cane, which nearly doubles the second placed India, and is fivefold in front of Chinese production. Reports came in that supply from Brazil was going to be lower than expected, over 13 million tons lower to be exact. One analyst commented that “everything that we’re reading is saying that supply is going to be a little bit low” in regards to the current sugar market. All in all, sugar futures soared 5% on the day to rise close to the 31.5 cent mark to finish the week [see also Ultimate Guide To Sugar Investing]. [...]
[...] Sugar, a member of the softs family, is one of the more popular commodities among investors as it is known to exhibit volatile daily swings, leaving the door open for some handsome gains. While sugar may seem like a strange investment, it is an international commodity just like crude oil or copper. But for commodity traders looking for glaring trends in recent environments, sugar is it. The past week has watched a number of commodities face devastation, as increased market volatility has put a significant amount of pressure on these global assets. Over the trailing five day period, sugar has been the top dog as far as commodities are concerned, posting gains of 3.2%, while others, like silver, lobbed off more than 10% of their prices [see also Ultimate Guide To Sugar Investing]. [...]
[...] Sugar, a member of the softs family, is one of the more popular commodities among investors as it is known to exhibit volatile daily swings, leaving the door open for some handsome gains. While sugar may seem like a strange investment, it is an international commodity just like crude oil or copper. But for commodity traders looking for glaring trends in recent environments, sugar is it. The past week has watched a number of commodities face devastation, as increased market volatility has put a significant amount of pressure on these global assets. Over the trailing five day period, sugar has been the top dog as far as commodities are concerned, posting gains of 3.2%, while others, like silver, lobbed off more than 10% of their prices [see also Ultimate Guide To Sugar Investing]. [...]
[...] Sugar, a member of the softs family, is one of the more popular commodities among investors as it is known to exhibit volatile daily swings, leaving the door open for some handsome gains. While sugar may seem like a strange investment, it is an international commodity just like crude oil or copper. But for commodity traders looking for glaring trends in recent environments, sugar is it. The past week has watched a number of commodities face devastation, as increased market volatility has put a significant amount of pressure on these global assets. Over the trailing five day period, sugar has been the top dog as far as commodities are concerned, posting gains of 3.2%, while others, like silver, lobbed off more than 10% of their prices [see also Ultimate Guide To Sugar Investing]. [...]
[...] Sugar’s gains were sparked by troubling news from Brazil, the world’s leading producer of the sweet commodity. According to industry experts, “production in the Center South, the main growing region, may be 32 million metric tons in the season that starts in April, down from a forecast of as much as 34 million tons in February, after drought damaged crops” writes Yi Tian. Sugar’s progress in the past five days brings the commodity to gains of just over 13% on the year. Silver on the other hand, has been one of the best performing commodities on the year, but lost steam this past week as investors increased their risk appetite and moved into equities. For those who have strong opinions on where either of these commodities are headed, we offer ways to play them both below [see also Ultimate Guide To Sugar Investing]. [...]
[...] Sugar futures are among the most popular commodities for active traders due to their relatively high volumes and enticing volatility. Though the latter fact can leave you on the receiving end of a very sour trade, it also has the potential to make a fair amount of profits for you and your portfolio. For those interested in diving into the world of sugar futures, there are a lot of factors that need to be considered on a daily basis. The most powerful thing a trader can do is to educate themselves and stay up to date with the happenings in the commodity world. Below, we outline five blogs that will be instrumental to helping you make the most informed trades on this soft commodity [see also Ultimate Guide To Sugar Investing]. [...]
[...] Ethanol: With alternative energies becoming more popular, many may turn to sugar-based ethanol as a substitute for fossil fuels. In Brazil, a significant portion of sugar is used in ethanol production. To the extent that ethanol demand increases in the future, so too will the demand for sugar. While ethanol was once thought to have the power to displace gasoline, it seems that this idea is now rather far-fetched. It may be the case that ethanol use decreases in coming years or levels off, which will be important for sugar traders to keep an eye on [see also Ultimate Guide To Sugar Investing]. [...]
https://www.m5commoditiesbrazil.com/