Sugar ETFs Strengthen on Thai Supply Problems, Weak Dollar

Sugar-related exchange traded funds climbed Friday, with sugar prices hitting a four-and-a-half month high, as a falling supply outlook and weaker U.S. dollar currency helped prop up this soft commodity market.

On Friday, the iPath Series B Bloomberg Sugar Subindex Total Return ETN (NYSEArca: SGG) rose 4.2% and Teucrium Sugar Fund (NYSEArca: CANE) gained 3.5% while ICE Sugar #11 futures were 4.4% higher to $0.1264 per pound.

Sugar futures were rallying Friday on a falling outlook in Thailand sugar production, along with support from a depreciating U.S. dollar – the weaker greenback makes USD-denominated commodities more attractive for foreign buyers, Business Recorder reports.

The U.S. dollar continued to decline against major currencies on Friday and was on pace for its biggest monthly pullback in a decade.

Meanwhile, sugar prices jumped to their highest level since early March due to production issues. Specifically, dealers warned that drought was set to curb production in Thailand, which should help at least partially offset a strong increase in output in Brazil.

“With less Thai raws becoming available early next year, the market looks substantially less crowded by the extra sugar from Brazil,” Commonwealth Bank of Australia analyst Tobin Gorey said in a note.

According to a recent Reuters poll, traders and analysts believed production in the key Centre-South region of Brazil rising sharply in 2020/21 and will contribute to a global surplus of the sweetener.

Sugar remains depressed for the year as the coronavirus pandemic weighs on demand and supports supply, Reuters reports. Market observers project sugar prices were could end 2020 at 12 cents per lb, or 11% below levels at the end of 2019, with a global surplus of 3.5 million metric tons for the 2020/21 season.

“The impact of COVID-19 is not fully understood but the negative impact (on sugar consumption) seen in India and China is very unlikely not to have been replicated across the globe,” analyst John Stansfield of Group Sopex told Reuters.

“Going forward the potential global recession will hit sugar demand,” he added.

For more information on the sugar market, visit our sugar category.