The past week was riddled with volatility as equities failed to establish any kind of meaningful pattern. With equities in disarray, commodities futures suffered, as they tend to exhibit a fair amount of volatility on their own, despite market conditions. A number of major commodities posted losses for the trailing week, as news from Europe coupled with a weak Chinese GDP report prompted some rough sell-offs. One of the hardest hit commodities came from the softs family. Sugar futures endured a bumpy week, as Sugar #11 futures lost 5.4% while #16 contracts tacked up losses of nearly 6.1% [see also 12 High-Yielding Commodities For 2012].
The dismal performance of this commodity came from a supply issue, prompting sugar traders to remain bearish on the outlook for this sweet commodity. After expanding production last year amid sky-high prices, a surplus has developed in the form of stockpiles around the world. “‘We have a surplus this year and it looks like we will have another one next year and that is more bearish than we initially thought,’ said John Stansfield, a senior analyst at Olam in London. “The last time the glut for two consecutive years was so big, prices were significantly lower,’ he added”. With global production only slated to increase, it looks like sugar is in for a period of contraction, creating a big opportunity for traders [see also What Is Contango?].
Ways To Play
For investors who have a strong opinion on the future of sugar, there are several ways to make a play on the commodity. Perhaps the most direct method of obtaining exposure comes from No. 11 Sugar futures contracts offered on the NYMEX. Of course, futures trading can be risky and may be over the heads of certain investors, in that case, there are a number of safer options, though they will offer more of an indirect exposure. There is the Dow Jones-UBS Sugar Subindex Total Return ETN (SGG), which offers exposure to front month futures contracts without the hassle of owning and maintaining a futures account. Investors can also obtain exposure through Imperial Sugar (IPSU), a U.S. company that refines, packages, and distributes sugar [see also 50 Ways To Invest In Agriculture].
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Disclosure: No positions at time of writing.
