Weather and Clean Energy Could Keep Sugar Prices Soaring

A combination of harsh weather conditions and now the demand for clean energy could keep sugar prices soaring. It’s an opportune time to get exposure to the commodity to diversify a portfolio.

This year, a severe drought affecting harvests has elevated sugar prices. India is the second largest producer in the world. Lack of rain has been a thorn in its side when it comes to meeting demand.

“Sugar prices in India have jumped by more than 3% in a fortnight to their highest level in six years, traders and industry officials said, as limited rainfall in the country’s key growing regions raised production concerns for the upcoming season,” a Reuters article noted, saying that it “could add to food inflation and discourage New Delhi from allowing sugar exports, supporting global prices , which are near their highest in more than a decade.”

Use as a Biofuel

Low supply due to harsh conditions is a strong impetus for higher sugar prices. Another is the demand for alternative energy sources. Biofuels like ethanol require sugar. India’s commitment to use more alternative energy sources recently propped up stock prices of producers.

“Shares of sugar producers came under buying interest by investors after India announced global biofuel alliance at a G20 summit to boost the use of cleaner fuels,” a Republic World article noted. “Shares of sugar makers surged on hopes that global alliance for biofuel will create additional demand for molasses which is used as raw material to make ethanol.”

“The alliance, with the United States and Brazil as its founding members, would help accelerate global efforts to meet net zero emissions targets by facilitating trade in biofuels derived from sources including plant and animal waste,” the article added further.

This confluence of events is potentially pushing prices even higher than they are already. Short-term traders and long-term investors may want to add the commodity to their portfolios. One easy way to do this is via exchange traded funds (ETFs) or more specifically, 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 market for future delivery. It does this by measuring a weighted average of the closing settlement prices for three futures contracts for No. 11 Sugar. All three of these trade on the ICE Futures US. The fund seeks to achieve its investment objective by investing under normal market conditions in Benchmark Component Futures Contracts.

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