A Sweet Tooth for Your Portfolio?

| About: iPath Dow (SGG)

The world’s got a sweet tooth, and it’s made the sugar exchange traded note (ETN) (NYSEARCA:SGG) one of the top-performing funds in the last three months. But will the sugar rush last?

Speculation on rising demand for sugar in Asia is taking sugar prices higher – for the moment. Yi Tian for Bloomberg reports that tightness in the market has been seen in places such as the Philippines, which may auction rights to import 100,000 metric tons of it. Pakistan is allowing traders to import 500,000 tons without duties until Nov. 30.

But the rise in sugar prices may grind to a halt.

Brazil and India’s bumper crops may send sugar prices down as much as 25% over the next few months. Thomas Kutty Abraham for Bloomberg reports that India will export at least 2 million to 3 million tons next season, lowering prices. Brazil’s Center South may produce 34.7 million tons in the 2010-2011 season, up from 28.7 million tons a year ago.

Lucia Kassai for BusinessWeek reports that Brazil’s Agriculture Ministry has said as much: raw and white sugar prices will fall over the next two years. White sugar will decline to $490 a ton by 2011 from $540 now, while raw sugar will drop to $390 a ton from $480 now.

A few facts about sugar:

  • The United States consumes 10 million tons of refined sugar per year, and is the word’s largest sugar exporter. CarrTracks says that U.S. sugar imports have declined sharply to levels last seen in the 1980s.
  • Indian Sugar reports that world consumption and global output of sugar is seeing a widening gap. Global production is up 3.07%, while consumption is growing slower than the 10-year average, 1.48%-2.68%.

There's one ETN that directly tracks sugar:

  • iPath Dow Jones UBS Sugar TR sub-Index (SGG) the top-performing fund in the last three months, up 27%.

Tisha Guerrero contributed to this article.

Disclosure: None