ETF Chart of the Day: Sugar
May 22nd 2012 at 11:51am by Paul Weisbruch, Street One Financial
In examining the agricultural commodities space recently, the ETF issuer Teucrium helped make us aware of a seasonality trend that they routinely track in the Sugar markets.
We note from historical price tables that sugar prices typically (but not always) reach their maximum low point somewhere in between April and June of each year.
This is caused by one of the largest producers in the world, Brazil, reaching their peak harvest during this time of year. We are told that nearly a full year’s worth of sugar supply is delivered to the market over an 8-12 week period during this harvest, and therefore, the influx of supply of sugar on the market often causes prices to plunge, as one would naturally expect.
The absolute price of sugar often takes a hit during this time of year, as does the average annual price of sugar. On the flipside, Teucrium notes, sugar tends to soar to its absolute price high as well as see its average annual price positively diverge during the February through September timeframe.
If one looks at a chart of Teucrium Sugar Fund (NYSEArca: CANE), an ETF which invests in Sugar futures contracts in attempts to track the spot price of the commodity, one can clearly see that current price levels in the product are near its all-time
Granted, the product has a very limited history, having debuted in September of 2011, but a more established fund in the Sugar space, iPath DJ-UBS Sugar Subindex Total Return ETN (NYSEArca: SGG) also it toiling near multi-month lows, as is related ETN iPath Pure Beta Sugar (NYSEArca: SGAR).
Year to date, SGAR is down 15.43%, CANE has lost 11.02%, and SGG has fallen 7.40%. None of these ETF/ETN products trade on a frequent basis, and published bid/ask spreads can potentially be fairly wide. This should be expected to some extent because Sugar futures only trade during the hours of 9AM-130PM EST and the commodity itself is more of a niche play than anything else, and may not be followed heavily and/or appeal to as broad a base of investors as say Gold or Crude Oil for instance.
That said, it is still possible to trade with efficiency in these products, it simply entails being cognizant of the hours of optimal liquidity for the underlying, which is directly tied to the exchange hours where sugar futures are trafficked the most, as well as input and know-how from a seasoned ETF execution desk that understands that volume (or in this case lack of volume), and width of published bid/ask spreads only tell a part of the story.
Teucrium Sugar Fund