Over the past few years, the sugar market has been on a… well, sugar high!
As massive amounts of sugar were being produced around the world, the resulting surplus proved detrimental for the price. It fell by over 50% from its 30-year peak in 2011, to a low of $0.15 per pound in early 2014.
Currently, sugar is trading at about $0.17 a pound, still well off its 2011 highs. But there’s reason for optimism for long-suffering sugar bulls…
All of this sugar surplus will soon become deficit.
Brazilian Drought Parches Sugar Market
As retailers pathetically blame rising or falling sales on the weather, the sugar market is much closer to the action.
And right now, the world’s top sugar-producing country – Brazil – is in the midst of a severe drought, which has drastically affected the country’s sugar crop.
Brazil’s largest sugar-growing and exporting company, Copesucar SA, recently forecasted that sugar production will drop from last year’s record level by nearly 7%. That would be the biggest annual fall in production since 2000.
The equation here is simple: Major drops in Brazilian sugar production have always led to rising sugar prices. In 2000, for example, a poor Brazilian sugar crop saw the commodity double in price.
And while we might not see such a dramatic jump this time, the global sugar deficit is quite real…
Weak Monsoon Season Threatens to Hammer Sugar Market
Industry estimates show a deficit between 500,000 and two million metric tons (mmt) of sugar.
Why such a wide forecast?
This is the wildcard in the sugar market. Not only is it the world’s largest sugar consumer, it’s also the second-biggest producer.
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India’s sugar market is also suffering from weather-related issues. The annual monsoon has produced less-than-normal rainfall – and if this pattern persists, the sugar yield will consequently be less than expected.
Result? India – whose market is well capable of producing enough sugar to satisfy its demand, as well as exporting it abroad – could be forced to import sugar. That would knock the market totally off kilter, and send prices skyrocketing.
Either way, the Brazilian drought alone is enough to increase worldwide sugar prices.
So how can commodity investors play this situation?
It’s Time to Play an Imminent Sugar Price Spike
Sugar market insiders say it’s a virtual lock that we’ll see higher sugar prices in the coming months.
So astute investors should look for a way to play this.
Take a look at the Teucrium Sugar Fund (CANE). It’s an exchange-traded fund with an expense ratio of 1.6%.
It offers simple, direct exposure to sugar futures on the Intercontinental Exchange without needing to dip into the futures market. The fund is equally weighted in three different sugar futures – all with different expiration timeframes.
After years of underperformance caused by a supply surplus, the current situations in Brazil and India mean a shortfall is on the cards. As such, it’s time to play the expected price hike.
And “the chase” continues,