Sugar ETFs Surge on Brazilian Supply Outlook, Short Covering

Sugar futures and commodity-related exchange traded products climbed Monday on expectations of a smaller cane to sugar output out of Brazil after a tax change that could make ethanol more competitive.

On Monday, the iPath Bloomberg Sugar Subindex Total Return ETN (NYSEArca: SGG) rose 4.4% and Teucrium Sugar Fund (NYSEArca: CANE) gained 2.8%. Sugar has staged a big rally over the past month, with SGG 14.6% higher and CANE up 12.2% over the past month.

Meanwhile, ICE sugar futures were 3.8% higher to $0.1491 per pound and were on pace for their highest close since May 30.

While Sucden Financial Research argued that most of Monday’s gains were attributed to technical buying – sugar crossed over its 50-day simple moving average – and short covering, the commodity also strengthened on news that the Brazilian government said it would reduce the tax on ethanol to lure buyers, reports Julie Wernau for the Dow Jones Newswires.

Brazil is the world’s biggest producer of sweetener, and cane producers can covert cane to either sugar or ethanol. Brazil’s tax changes could cause producers to convert more cane to ethanol or lower the supply of sugar.

“It is expected that on a forward basis, ethanol will recover its price advantage towards the end of 2017,” Nick Penney, senior trader at Sucden, told the Dow Jones Newswires.