Severe Drought in Thailand Could Push Sugar Prices Higher

Severe weather conditions in Thailand stemming from El Niño can continue to push sugar prices higher, offering bullish traders in the commodity more reason to pile into their positions.

Thailand represents the third-largest country when it comes to sugar production, so the impact of a drought will have a profound effect on prices. Moreover, it doesn’t appear as though the drought is a short-term problem, which could potentially keep sugar prices elevated.

“Thailand is preparing contingency plans to deal with a potential drought that could last years and squeeze global supplies of sugar and rice,” a Bloomberg report said.

“Rainfall across the nation may be as much as 10% below average this monsoon season, and the onset of the El Niño weather pattern could lower precipitation even further over the next two years, according to government officials,” the report added further.

Further exacerbating the severe weather conditions is the regulatory measures to curb the effects of the drought. Farmers must now try to conserve water by restricting rice planting to a single crop, which could further crimp the supply of sugar thereby pushing prices even higher.

“The dire outlook has prompted Thai authorities to ask farmers to restrict rice planting to a single crop to conserve water, and sugar producers see output falling for the first time in three years,” according to the Bloomberg report. “A drought is certain to fuel inflation in the Southeast Asian nation as the cost of vegetables, fresh food and meat get pricier on reduced harvests and more expensive animal feed.”

Trade the Impact With CANE

With dire conditions for water conservation playing out in Thailand, bullish sugar price traders have options with exchange traded funds (ETFs). As such, consider the Teucrium Sugar ETF (CANE) — the only sugar ETF on the market.

The fund seeks to have the daily changes in the NAV of the fund’s shares reflect the daily changes in the sugar market for future delivery as measured by a weighted average of the closing settlement prices for three futures contracts for No. 11 Sugar that are traded on the ICE Futures US. The fund seeks to achieve its investment objective by investing under normal market conditions in Benchmark Component Futures Contracts.

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