Until recently, supply had kept pace with demand. However, two top sugar producing countries, Brazil and India, have been hit by the global credit crisis and a decline in production, respectively, resulting in estimates for production to drop by 3.8%.
Falling crude oil prices may curtail this supply shock, in that a huge chunk of the sugar produced in Brazil is used to fuel the production in ethanol and may now be used to chip away at the decrease in production.
Since its inception in July, iPath DJ AIG Sugar TR Sub-Idx ETN (SGG) is down 25.5%.