By Jared Cummans
Sugar, a member of the softs family, is one of the more popular commodities among investors as it is known to exhibit volatile daily swings, leaving the door open for some handsome gains. While sugar may seem like a strange investment, it is an international commodity just like crude oil or copper. But for commodity traders looking for glaring trends in recent environments, sugar is it. The past week has watched a number of commodities face devastation, as increased market volatility has put a significant amount of pressure on these global assets. Over the trailing five day period, sugar has been the top dog as far as commodities are concerned, posting gains of 3.2%, while others, like silver, lobbed off more than 10% of their prices [see also Ultimate Guide To Sugar Investing].
But there is reasoning behind the jump in sugar futures and it comes in the form of a supply glut from Mexico. With less-than-ideal weather conditions, Mexico’s sugar output has dropped, leading to higher prices temporarily. But don’t let that fool you into taking a long position right away. With production slowing down in some countries, a number of other Central American nations have agreed to step up and fill in the gap left behind. This may lead to a drop in sugar prices as supplies become more stable. Of course, if the supplies are unable to meet global demand, sugar could also continue its run. Either way, a position in this commodity should be monitored very closely and will likely be measured in hours and minutes rather than days and weeks [see also 12 High-Yielding Commodities For 2012].
click to enlarge
Ways To Play
For investors who have a strong opinion on the future of sugar, there are several ways to make a play on the commodity. Perhaps the most direct method of obtaining exposure comes from No. 11 Sugar futures contracts offered on the NYMEX. Of course, futures trading can be risky and may be over the heads of certain investors, in that case, there are a number of safer options, though they will offer more of an indirect exposure. There is the Dow Jones-UBS Sugar Subindex Total Return ETN (SGG), which offers exposure to front month futures contracts without the hassle of owning and maintaining a futures account. Investors can also obtain exposure through Imperial Sugar (IPSU), a U.S. company that refines, packages, and distributes sugar [see also 50 Ways To Invest In Agriculture].
Disclosure: No positions at time of writing.