Sugar has been a sweet spot in the markets for several months. And then, in just two days last week, the exchange traded note that tracks it sank more than 20%. What happened?
Sugar prices plunged the most in 22 years last week, and what sent it south might not be a surprise. Speculation that China would increase interest rates to cool inflation in its economy sent fear through the market that the world’s largest commodity consumer would be stepping back, says Debarati Roy for Bloomberg.
The question now are the good times over or will the initial shock soon wear off?
Both international and domestic sugar prices have hit 30-year highs in 2010 and pushed iPath Dow Jones UBS Sugar TR sub-Index (NYSEArca: SGG) up more than 92% in the last six months.
Fortunately, China is far from the only market that consumes sugar in a big way. Other emerging markets are seeing their middle classes rise, too, and they’re demanding more complex diets.
Fundamentally, the case for sugar still might be there. Matt Theal for Minyanville reports that a drought, falling production and an end to the harvest season in Brazil could ultimately keep sugar prices elevated.
Tisha Guerrero contributed to this article.