Stubborn and sticky inflation is rearing its ugly head once again, adding a spark of volatility to the capital markets. Of course, that opens opportunities for investors to add agricultural commodities to diversify, or in the case of sugar, add an inflation hedge.
Bets on rate cuts appear to be unraveling, as much optimism was abounding heading into 2024 that the Federal Reserve would finally loosen monetary policy. However, the central bank has been keeping rates steady to start the new year, so the prospect of swift and frequent rate cuts appears to be dissipating.
A data-dependent Fed may also pivot given the higher-than-expected inflation numbers.
“As the first month of 2024 drew to a close, the United States found itself grappling with an unexpected surge in inflation,” a BNN report said. “The consumer price index rose by a staggering 3.1%, surpassing economists’ predictions and sparking concerns about the potential impact on the economy.”
Hedge Inflation With Sugar
Investors who put away their inflation hedges during 2023’s fourth-quarter rally may be dusting them off once again. Sugar prices, which have grown profoundly the past year, can offer such a solution.
“The FAO Sugar Price Index edged up 0.8% to 135.3 index points in January 2024, mainly driven by concerns over the likely impact of below-average rains in Brazil on sugarcane crops to be harvested from April, coupled with the slow start of the new season and unfavorable production prospects in Thailand and India,” according to the Food and Agriculture Organization of the United Nations.
Last year, harsh weather patterns from El Nino affected supply, and that same catalyst for prices should affect sugar once again this year. Major global producers like Southeast Asia and India have trimmed their supply outlook due to severe droughts, keeping sugar prices elevated,
“What’s really driving all of this is basically this El Nino that’s in place right now. It’s really affecting the crop,” said David Branch, senior vice president at Wells Fargo Agri-Food Institute.
If inflation continues to persist and the Fed makes an unexpected pivot, sugar offers an ideal inflation hedge. If that’s the case, investors may want to take a look at the Teucrium Sugar ETF (CANE).
While there are exchange traded note options available, CANE is currently the only sugar ETF on the market. It’s accessible to investors who want a convenient way to get exposure to this commodity, whether it’s to hedge against inflation and/or to diversify a portfolio to get exposure to commodities that are uncorrelated to traditional assets like stocks or bonds.
US Sugar Futures Contract Price data by YCharts
For more news, information, and analysis, visit the Commodities Channel.