Sugar's Fundamental Shift?

I first made the bullish case for sugar in February of last year. Since that time, sugar is roughly flat. I, however, am not roughly flat, and am, in fact, way, way below flat, having traded the white stuff poorly. Ah well, lesson learned.

I closed out my last sugar futures position a few days ago so I can invest what is left of my account in another more compelling idea. However, a long-term shift may be occurring that is bullish for sugar, and I may revisit the trade some time in the future.

Sugar, the nutritional pariah that dentists and dietitians have long reviled, is enjoying a second act, dressed up as a natural, healthful ingredient.

From the tomato sauce on a Pizza Hut pie called “The Natural,” to the just-released soda Pepsi Natural (PEP), some of the biggest players in the American food business have started, in the last few months, replacing high-fructose corn syrup with old-fashioned sugar.

ConAgra (CAG) uses only sugar or honey in its new Healthy Choice All Natural frozen entrees. Kraft Foods (KFT) recently removed the corn sweetener from its salad dressings, and is working on its Lunchables line of portable meals and snacks.

Comments

[LoneRngr:]

looks like a bitter dose of humble pie. :-) i admire your candid admission of trading results. as for trends in the sugar market, stevia is the new "in" thing, it's an all-natural calorie-free sweetener. two stocks to play in this space include PURE (London) and GLG (Toronto), although neither is cheap by conventional metrics!

Mar 24 10:32 AM

[Delbert:]

What about the demand for sugar in the ethanol market? If the U.S.
& Brazil negotiate a trade deal, we could have an abundant source
of sugar/ethanol for alternative energy...........

Mar 24 11:35 AM

[Bruce Pile:]

Corn ethanol is virtually useless in replacing oil with it's EROEI of 1.3, meaning that it takes over 20 barrels of finished ethanol product to save one barrel of imported oil. No nation can be self sustaining with corn derived fuel. Sugar ethanol has an EROEI about the same as oil and can effectively replace oil.

At some point, hopefully, the dunce nations (the U.S. is chief dunce) that account for 40% of global ethanol use will abandon the corn growers' political brew and start using sugar like the other 60%. This could add dramatically to the basic recession resistant food demand for sugar. If oil supply destruction continues to catch up to demand destruction, and the oil price heads back into a climb, effective crude replacement could come back into vogue.

Congress has turned a cold shoulder to the Pickens Plan for converting our vehicles to natural gas. Natural gas and sugar are the only two viable replacements for oil on the scale needed. The other options, solar, electric, hydrogen, and the other things do not have the EROEI needed or the near term availability needed. Until cellulose ethanol is developed, sugar may become a very important bridge fuel for years.

Mar 24 06:27 PM

[Jade Queen:]

The brouhaha about genetically engineered sugar beets is just getting going. It could be a few years out, but if consumers can know if GM sugar is in something edible, then this sugar could go the way of recombinant Bovine growth hormone. I just hope rainbow chard doesn't get contaminated in the meantime. As for the ethanol market, maybe somebody will figure out how to use kudzu and other presently unused resources. Agave is also a big deal in the gourmet market, but it could become more commoditized soon. I believe its glycemic effects are better than for regular sugar. Fads run through this sort of thing so quickly. I wouldn't venture to bet on sugar.

Mar 24 06:37 PM

[dawase@gmai...:]

I haven't done the valuation work on CZZ yet, but I wanted to weigh in. From 20,000 feet, you getting a triple threat from what I can see.

1. Brazil - BRIC has outperformed since January relative to the SP500. Brazil is in a good place to start from, potentially better than the other three. Good domestic demand, decent federal b/s.

2. Commodity play - If all this stimulus isn't put on a leash, inflation might be nasty. Commodities should do well in that environment. In the meantime, China is picking up the demand slack by bidding on almost every asset in sight. Oil is up significantly on this thesis.

3. Ethanol - Sugar-based ethanol - currently the low-cost provider in the space. Cellulosic will probably mature in the 2010 time frame assuming no additional setbacks. However, Brazil has the largest E90 fleets in the world. Almost every car sold today is E90-capable. Plenty of domestic demand if the export idea doesn't pan out.

Now if I can just determine that it's cheap, I'll be in heaven.

Mar 27 01:32 AM

[weargue:]

CZZ was cheap.

Jun 11 05:22 PM