Sugar ETN: Sweeter Times Ahead?

| About: iPath Bloomberg (SGG)
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The number of American sugarcane farmers has dwindled as a result of years of low sugar prices and rising fuel and fertilizer costs. But renewed vigor in sugar prices may allow sugar farmers and related sugar ETN to indulge in some sweet times.

What the case for sugar?

  • Louisiana, America’s second-largest sugarcane producer, saw sugarcane farms decrease to 550 compared with 850 in 2002, according to The Economist. Most sugar producers are part of agribusinesses in Florida, America’s top-producing sugar state.
  • The price per pound of American raw sugar has doubled in the last year, reaching a peak of 40 cents per pound in February before dropping last month. Confectionery and sweet cereal manufacturers are now warning that they will have to raise the prices of their products and lay off workers if the government does not ease restrictions on foreign sugar.
  • According to the American Sugar Alliance, estimates that the average American eats 44 pounds of sugar a year, which means that America is eating 25% more sugar than the country can produce from sugarcane and beets.
  • It’s not just the United States that’s got a sweet tooth. Developing countries want more things that come from the better life, which includes sweets, and economic insecurity has also pushed people to comfort foods. The USDA projects that global sugar consumption will increase by 1.5m tons this year.

However, monsoons and bad weather damaged sugar crops in India and Mexico last year. Brazil, the largest exporter of sugar, now converts half the sugar it produces to make ethanol.

Bear in mind that after riding high for months, the iPath Dow Jones AIG Sugar TR Sub-Index ETN (NYSEArca: SGG) is now down 42.4% year-to-date and is 19% below its long-term trend line. Are these forecasts full of hot air, or is there something to it? Either way, wait until the trend appears if you want to play sugar.

iPath Dow Jones AIG Sugar TR Sub-Index ETN (NYSEArca: SGG)

Max Chen contributed to this article.