While the broader commodities market has been retreating in the face of a stronger U.S. dollar, sugar futures and related exchange traded funds jumped Tuesday.
On Tuesday, the iPath Bloomberg Sugar Subindex Total Return ETN (NYSEArca: SGG) rose 4.5% and Teucrium Sugar Fund (NYSEArca: CANE) gained 4.8%. Over the past three months, SGG increased 24.1% and CANE advanced 12.4%. In contrast, the PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC), which includes a heavy tilt toward energy commodities, dipped 4.2% over the past three months.
ICE Sugar #11 futures contracts were trading 5.2% higher to $0.1471 per pound Tuesday.
Sugar prices are sweetening in response to improving fundamentals. Annual production this year may fall below global consumption for the first time in five years, helping bring down a sugar glut that pushed prices to a seven-year low in August, the Wall Street Journal reports.
The International Sugar Organization projects the sugar market will have the first “statistical deficit” this year as current production falls short of demand by 3.5 million tons. However, there is no shortage of sugar around the world due to excess inventories from a four-year buildup.
“We have seen the longest bear market in sugar for quite some time,” Michael McDougall, director of commodities for Société Générale, told the WSJ. “It’s like a large ship that takes a lot to turn. But it looks like it’s finally beginning to turn.”
A modest recovery among emerging market sugar producers, notably those in Brazil and India, has helped strengthen currencies against the U.S. dollar and bolstered sugar prices.
Rising demand in Brazil for ethanol use in cars, along with higher prices for the fuel, has increased expectations that sugar canes could be used to produce energy, further lowering the supply outlook. The weakness in the Brazilian real currency over the past year has made ethanol an attractive alternative to higher-priced, U.S. dollar-denominated gasoline.
Additionally, sugar is gaining momentum as a return of the El Nino weather phenomenon led to drier conditions diminishing output in India, the smallest crop in a decade across China and heavy rains in Brazil that has slowed harvesting. [2 Sweeteners Helping Sugar ETF]
Fueling the gains in sugar prices, money managers have increased wagers on sugar, with futures trades setting a new record in September and bullish bets at a two-year high this month, according to the Commodity Futures Trading Commission.
iPath Bloomberg Sugar Subindex Total Return ETN
For more information on the sugar market, visit our sugar category.
Max Chen contributed to this article.