Improved Supply Outlook Could Tame Sugar Prices

Increased sugar prices this holiday season have been putting consumers in a bind. But an improved supply outlook could ease the pressures heading into 2024.

For most of the year, the commodity has been facing supply chain disruptions from harsh weather that’s been causing droughts in key producer countries like India. In other parts of the world, like Mexico and even the U.S., more droughts have been crimping supply.

“Prolonged droughts in major cane-producers Mexico and Louisiana have helped push US sugar futures to the highest ever for this time of year and forced users to turn to high-cost imports instead,” a Bloomberg report said.

In the meantime, India is implementing key measures to try and ease prices by making sugar mills use alternatives for ethanol production. That could help increase supply and add more downward pressure to the commodity’s prices.

“Sugar prices were also undercut by recent news that India’s food ministry directed local sugar mills to stop using sugar cane juice and syrup to produce ethanol in the 2023/24 supply year to boost sugar reserves,” a Barchart report said. “Green Pool Commodity Specialists said this could add 2 MMT of sugar to India’s domestic supplies.”

To highlight the volatility of the commodity’s prices, the S&P GSCI Sugar index went as high as 40% before the sharp drop following the Thanksgiving holiday. That reprieve from high sugar prices could give value investors an opportunity to get the commodity’s exposure on the dip. Detrimental weather could continue to play a major factor in sugar prices in the new year. That could add more bullishness for the commodity’s prices.

^SGSH Chart

^SGSH data by YCharts

Sweeten a Portfolio With This Sugar ETF

While the capital markets are expecting the Federal Reserve to loosen monetary policy in 2024, using the commodity as an inflation hedge may not be its prime use, but can still sweeten a portfolio with diversification. 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.

For more news, information, and analysis, visit the Commodities Channel.