Sugar: It's Like AIG, Except We Actually Need It

Sugar is putting on a quite prideful display in 2009; granted it is nosAIG (AIG) in terms of doubling every week in value, but for a commodity that actually is not government-supported, it is doing quite well.



Wait a second... sugar is also subsidized in the U.S?..... is there anything the government is not protecting?

We mentioned sugar was at a 28 year high at the beginning of the month due to a weak monsoon season in India [Aug 7, 2009: India's Growth May Suffer Due to Weak Monsoon Season], and sugar is now making a case for "commodity of the year" [Jun 20, 2009: The 10 Hottest Commodities of 2009]. Brazil has now joined the "rain" story in sugar... however, for completely opposite reasons as India.

• Sugar-cane output in Brazil is declining after rains this month in parts of the Center South, the world’s biggest producing region, were at their most severe in more than six decades.
• Precipitation in northern Sao Paulo state reached 150 millimeters (6 inches) this month through Aug. 26, the most since 1948, Biagi, the world’s second-biggest sugar-cane grower, said in an interview.
• The showers will pare the Center South’s cane output in the second half of this month to 30 million metric tons from 40.1 million in the first half, he said.

Speaking of Brazil and sugar.... (mid-August story)

• Cosan SA Industria e Comercio, the world’s biggest sugar-cane processor, gained the most in eight weeks in Sao Paulo trading on speculation a drought in India will boost prices for the sweetener.
• Piracicaba, Brazil-based Cosan posted a record profit for its fiscal first-quarter on gains from hedges, a stronger real and higher prices for sugar, according to an Aug. 14 filing.

Comments

[logicalthought:]

Take a look at Imperial Sugar (IPSU). I think they'll make north of $3/share in 2010, thanks to lower natural gas prices and a brand-new plant (fully paid for by insurance, and worth more than their entire current market cap) coming on line right around now. (The old plant was destroyed in an accident in early 2008, and took 2/3 of their production down with it, hence the recent losses-- which will be at least partially reimbursed by business interruption insurance). I own a bunch of their stock.

Sep 01 07:32 AM

[Mark Bern:]

Logic - Good tip! I'll look into it later today. It sounds like it could be ready for a pop but I'll probably not try to fight the macro machinations of the market. If the indexes continue south I'll wait for a better entry point.

Sep 01 08:49 AM

[logicalthought:]

Mark Bern,

Believe me, I'm as bearish as you are, which is WHY I own this one. I figure it'll be one of the few public companies out there able to show both revenue and earnings momentum going into next year, and thus investors who are desperate to find that will bid up the shares nicely.

Sep 01 09:18 AM

[MudEngineer:]

Actually, sugar is something that everyone would be much better off without. I suspect that in addition to the poor growing conditions elsewhere, sugar consumption is also rising. Sugar gives people a temporary good feeling is a time when everything is so damn depressing!

This statement is something coming from someone who has 200 acres of sugarcane, huh?

Sep 01 03:47 PM

[TraderMark:]

good point - we still need sugar more than AIG.

I mean at least sugar makes us happy in these depressing times in the 'real economy' (great times in Wall Street economy)


On Sep 01 03:47 PM MudEngineer wrote:

> Actually, sugar is something that everyone would be much better off
> without. I suspect that in addition to the poor growing conditions
> elsewhere, sugar consumption is also rising. Sugar gives people
> a temporary good feeling is a time when everything is so damn depressing!
>
>
> This statement is something coming from someone who has 200 acres
> of sugarcane, huh?

Sep 01 05:00 PM

[Mark Bern:]

"Actually, sugar is something that everyone would be much better off without."

Mud - I think you hit the nail on the head. This is exactly why they are similar. We'd all be better off with AIG, too!

Sep 01 07:24 PM

[Caribbeanbarry:]

The IPSU plant that blew was in Savannah. Many died. Many lawsuits to be settled as of yet. Just a thought. I've set my buy at 11. Also, remember Brazil is using much of their sugar for fuel. Prices are not coming down anytime soon. But then again, why bother with fundamentals in this market...

Sep 01 08:00 PM

[Mark Bern:]

That last sentence should have read: "without AID, too."


On Sep 01 07:24 PM Mark Bern wrote:

> "Actually, sugar is something that everyone would be much better
> off without."
>
> Mud - I think you hit the nail on the head. This is exactly why
> they are similar. We'd all be better off with AIG, too!

Sep 02 12:39 PM

[Were all Do...:]

200 acres times rising price = Mud engineer leads farm equipment recovery! Wonder who makes cane harvesters?

Sep 03 10:19 PM