By Jared Cummans
As far as soft commodities are concerned, sugar futures offer a compelling investment thesis, as their solid liquidity and high volatility make them ideal for active traders looking to make a profit. The commodity is also well-known for sticking to a relatively consistent seasonal pattern, allowing for its movements to be somewhat predictable depending which harvest season is upcoming. However, in the grand scheme of things, many traders may focus their efforts on the more popular commodities like natural gas and gold. For those looking to make a play on sugar contracts, we detail how to trade futures on this soft commodity [see also Beginner's Guide To Commodities].
First things first, those looking to invest in futures will need to decide which exchanges they would like to utilize. Below, we outline three of the most popular options in the world for trading sugar futures.
- New York Mercantile Exchange: When it comes to sugar futures in the U.S., no exchange offers the popularity that the NYMEX touts. No. 11 sugar futures contracts are quoted in U.S. dollar and cents per pound on this exchange. Each contract represents 112,000 pounds and investors can choose from March, May, July, and October. Another benefit to these contracts is that the trade Sunday-Friday between the hours of 6:00 p.m. and 5:15 p.m (CST), meaning that investors can make a play for approximately 23 hours every day (there is a 45 minute break period between each day) [see also Invest Like Jim Rogers With These Three Agriculture Stocks].
- Intercontinental Exchange: Sugar No. 11 can also be traded on the Intercontinental Exchange (ICE) with the very same contracts offered on the NYMEX. Note that the ICE also offers options and spreads on this commodity which have yielded well over 13 million trades this year alone. The ICE is a U.S.-based exchange and is a bit easier to navigate than the NYMEX page as it features a more basic design layout for quick and easy access. Trading hours last between 2:30 a.m. and 2:00 p.m. (EST) making this exchange a better fit for investors abroad, as one in Europe would find the majority of trading hours taking place during the work day.
- Multi Commodity Exchange: Finally, investors looking to go abroad can look to India’s Multi Commodity Exchange (MCX) which is based in Mumbai. The MCX offers medium grade sugar futures for the months of March, April, and July with trading times commencing between 10:00 a.m. and 5:00 p.m. Monday through Friday and a shortened Saturday schedule that lasts between 10:00 a.m. and 2:00 p.m (local time of course).
Though you can trade sugar at any time during the year, investors should be aware of its peak seasons in order to make a more educated play. As far as futures are concerned, prices typically bottom out around April and May. Subsequently they have enjoyed a nice spike in June/July for the past few years as peak harvest begins and the demand for sugar begins to increase. But directly investing in futures can be risky business and sometimes falls beyond the risk spectrum for investors.
For those looking for an alternative way to play this sweet commodity, there are three exchange traded products that are specifically designed to invest in sugar futures. The Dow Jones-UBS Sugar Subindex Total Return ETN (SGG) is the most popular option, as this ETN offers exposure to front month sugar futures with just over $23 million in total assets. There is also the Teucrium Sugar Fund (CANE) which seeks to avoid contango by investing a basket of sugar contracts that are spread across multiple maturities. Finally, investors can use the Pure Beta Sugar ETN (SGAR) which employs a unique roll methodology designed to mitigate the impact of contango.
Disclosure: No positions at time of writing.