According to the
"a mysterious white substance is being smuggled over the border
from Vietnam to China in growing quantities." Of course this
substance is a staple of modern Western society and something
increasingly in demand in China and other emerging markets.
"China is the world's top importer of raw sugar and
third-largest consumer overall. Toby Cohen, a director at London
sugar merchant Czarnikow, points out that China's overall sugar
consumption is still low in per capita terms, and expects it to
keep growing. China could consume "double the volume of
sugar it is consuming today, and still be consuming less on a per
capita basis than the western economies," he said."
The urbanization of China is credited for this rising demand
but urbanization is not anomalous to China. Other
emerging markets are experiencing increased demand for sugar
and other agricultural food stuffs. For emerging markets
investors interested in profiting from this demand there are
several options to choose from.
One way to invest in the anticipated price increase of sugar
is by owning the iPath DJ-UBS Sugar Subindex Total Return
Index ETN (SGG,
). SGG does not invest in companies that produce sugar but
in sugar futures contracts. This is more of a pure play on
the price of sugar which will be affected worldwide as increased
demand from emerging markets should drive prices higher.
Another option, especially for those investors convinced that
the prices of many agricultural commodities will be
driven higher by emerging market demand is the iPath Dow Jones
UBS Agriculture Total Return Sub-Index ETN (JJA,
). Like SGG, JJA invests in futures contracts as opposed to
stocks. Sugar currently represents approximately 10% of the
portfolio. Other commodities represented in JJA
include soybeans, wheat, corn, soybean oil and coffee.
A similar option, one which I mentioned in an
last week, is the PowerShares DB Agriculture Fund (DBA,
). DBA also has exposure to sugar as well as live cattle,
corn. soybeans and others.
Those emerging market investors that prefer individual stocks
might look into a company like Cosan Limited (CZZ,
). CZZ is a Brazil-based company that, among other things,
is involved in the production and sale of various products
derived from sugarcane and (through its Cosan Food segment) sells
food through brands like Uniao and Da Barra. Since late
2008 CZZ has risen from about $2.00 per share to more than $17.00
per share recently.
As China and its fellow emerging markets mature the demand for
commodities of all kinds will likely rise. Given the basic
need for food, commodities like sugar could be at the forefront
of supply shortages and would therefore experience price
increases. Under such circumstances all of the investments
referenced herein should prove to be profitable.