While many traders have been focused in on the energy commodity
world to start 2014, there have been several high flyers in the
soft commodity space too. And as natural gas has started to fall
back to earth, some commodities, such as sugar, have continued
their ascent and have reached fresh highs.
In fact, top sugar exchange-traded products are now up more than
17% in the past four weeks alone, though returns for the past three
months are still at just a 2% gain. In other words, the sugar surge
has been pretty recent, but it has been astounding too (also see
3 Commodity ETFs Surging Higher
Reasons for Sugar's Jump
The top reason for sugar's incredible run is the extreme weather
taking place in Brazil. The country's top sugarcane growing region
is experiencing a severe drought and this is curtailing sugar
According to the Wall Street Journal,
the drought could reduce the 2014 harvest by at least 36 million
metric tons, putting this year's production on par with last year.
And though global supplies are still edging out demand, global
consumption is likely to grow at about 2.3% this year.
Thanks to this smaller buffer between total supplies and demand,
many traders have been on edge, especially as there is some
uncertainty as to when the drought will actually end. Plus, it
doesn't help that India could also see a lower output, though
undoubtedly the focus has been on Brazil as of late (also read
Brazil ETFs in Focus on GDP Contraction
That is because the South American nation is actually the biggest
producer and exporter of the sweet commodity, so when wild weather
hits the country, it can have a drastic impact on sugar prices. In
fact, Brazil easily outproduces the number two country, India,
while it thoroughly dominates the top exporter list too.
Given this dominance, a shaky weather situation in Brazil can
really drive prices in the sugar market. And that is why prices for
sugar have risen from under 15 cents a pound to their current level
above 17.5 cents a pound in about a month, with some looking for
more gains in the weeks ahead too.
How to Play
If you believe this situation can continue, there are currently a
few sugar options in the exchange-traded product market. These
aren't really that popular, but do offer direct exposure to the
return of sugar futures (See
3 Biggest Mistakes of ETF Investing
Any of the following three could thus be very interesting
selections for those who believe that sugar can continue to run,
plus it doesn't hurt that all three have 'Buy' Zacks ETF Ranks too.
And should the recent drought continue and if more supplies are
impacted, these products could definitely continue their run as we
get into March:
iPath Dow Jones UBS Sugar ETN (
This is the most popular option in the sugar ETN market, tracking
the Dow Jones UBS Sugar Index. The product charges investors 75
basis points a year in fees, and focuses on front month futures for
This focus on front month contracts has been wise as the issues of
contango have not hurt this product at all as of late. After all,
the note has added about 17.5% in the past month, easily crushing
the 3.6% return put up by the S&P 500 in the same time frame.
Teucrium Sugar ETF (
This is the only sugar
on the market, and it tracks a benchmark of several sugar futures.
The product includes the second-to-expire Sugar no. 11 futures
(35%), third-to-expire sugar no. 11 futures (30%), and sugar no. 11
futures expiring in the March following the expiration month of the
third-to-expire contract (35%).
This approach seeks to reduce the impact of backwardation and
contango, though it is a bit pricey at 1.62% in expenses. Still,
the fund has been a solid performer as of late, putting up a 14.9%
gain in the past one month time frame (see
3 Top Ranked ETFs That Will Crush the Market in
iPath Pure Beta Sugar ETN (
This ETN also looks to reduce contango issues while staying
invested in the sugar market. This is done by following the
Barclays Capital Sugar Pure Beta Index, charging investors 75 basis
points a year in fees for the exposure.
This approach looks to select the contract that best tracks the
front year average price so that the negative impact of contango is
mitigated. This approach has served SGAR well, as the ETN has added
15% in just the past month alone, while it has easily outperformed
its counterparts over the past six months.
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TEUCRM-SUGAR FD (CANE): ETF Research Reports
IPATH-PB SUGAR (SGAR): ETF Research Reports
IPATH-DJ-A SUGR (SGG): ETF Research Reports
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