While most commodity ETFs have struggled in the last two weeks or longer, the sugar exchange traded note (ETN) has largely managed to buck the downtrend. How has it managed to stay so sweet?
- First, thank lower prices. Until recently, raw sugar futures were down 45% year-to-date. Naturally, it has stoked some demand and sent futures back up to two-week highs in recent days.
- Second, an overdone sell-off may be a factor, according to Elizabeth Campbell for BusinessWeek. Some analysts feel that sugar prices are residing a bit below what would be considered “fair.”
Not everyone believes that sugar has the potential to make back what it lost, though.
- Mobis Philipose & Ravi Ananthanarayanan of LiveMint.com report that most sugar producers believe prices will remain subdued. Thus, these companies have shifted focus to next year’s production.
- An increase in global sugar production has hurt prices. India’s production is now estimated at 18 million tons, compared to an earlier estimate of 13-15 tons. Next year’s forecast is for 23-25 million tones. Additionally, Brazil and China are expected to boost production by 9% and 21%, respectively.
- Domestically, government policy on sugar trade has hurt prices as well. For a period of time, there was “zero import duty on sugar, allowing imports of raw sugar without imposing an export obligation, restrictions on stocks kept with bulk consumers, and a weekly quota obligation on mills.” The net effect was lower prices. However, the government has since extended the weekly quota to a monthly obligation and has loosened stock restrictions for bulk consumers. Sugar companies are now hoping for a sugar duty to help push prices back up.
All that aside, sugar prices are still 20% higher than they were one year ago. The sugar ETN is more than 25% below its long-term trend line, however, so all we can do at this point is speculate and watch. If you’re interested in sugar, watch the trend line and act accordingly. [How to Follow Trends.]
- iPath DJ-UBS Sugar TR Sub-Idx ETN (NYSEARCA:SGG): Up 6% in the last two weeks
Sumin Kim contributed to this article.