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Sugar has been on a tear this year on lower-than-expected production in some key regions that raised worries about tight global supplies. Raw sugar futures jumped to a six-and-a-half-year high, leading to a rally in sugar ETFs.
iPath Series B Bloomberg Sugar Subindex Total Return ETN and Teucrium Sugar Fund (CANE - Free Report) are up about 28% so far this year and hitting new multi-year highs.
Earlier-than-normal closure of many sugar mills in India, lackluster supplies from other countries, including Pakistan and Thailand, and the prospect for limited Indian exports have curtailed sugar output. India may not approve additional sugar exports in the year ending September, with output likely to be below target. Notably, India is the largest sugar producer in the world (read: Winning India ETFs Despite Adani Controversy).
The International Sugar Organization (ISO) recently lowered its forecast for the global sugar surplus in the 2022-2023 season, driven mainly by lower-than-expected production. The organization now projects a global surplus of 4.2 million tons in 2022-2023 (October-September), down from the previous forecast of 6.2 million issued in the previous update in November 2022.
The rise in sweetener prices is also supported by the potential for oil’s recent rally to spur Brazilian and Indian mills to divert more cane to making ethanol. Further, rains in Brazil are expected to slow down the early harvest pace, thereby threatening supply conditions.
On the other hand, demand for sugar is rising exponentially due to world population growth and the expansion of the global middle class. Rising demand and tight supply conditions will continue to boost sugar prices (see: all the Agricultural ETFs here).
We have profiled the ETFs below:
iPath Series B Bloomberg Sugar Subindex Total Return ETN
iPath Series B Bloomberg Sugar Subindex Total Return ETN follows the Bloomberg Sugar Subindex Total Return, which delivers returns through an unleveraged investment in the futures contracts on sugar.
The note has been able to manage $42.4 million in AUM and trades in a paltry volume of roughly 6,000 shares per day. It has an expense ratio of 0.45%.
The Teucrium Sugar Fund provides investors an easy exposure to the price of sugar futures in a brokerage account. It uses three futures contracts for No. 11 Sugar that are traded on the ICE Futures. The three contracts include the second-to-expire ICE No.11 Sugar Futures Contract, weighted 35%, the third-to-expire ICE No.11 Sugar Futures Contract, weighted 30%, and the ICE No.11 Sugar Futures Contract expiring in March following the expiration of the third-to-expire contract, weighted 35% (read: Sugar ETF Hits New 52-Week High).
Teucrium Wheat Fund has amassed $32.6 million in its asset base and trades in a good volume of about 93,000 shares a day. It charges a fee of 22 bps per year.
State of Backwardation: A Positive for Sugar
Sugar is benefiting from the positive roll yield in the futures market. This is because the market is in a prolonged period of backwardation, where later-dated contracts are cheaper than near-term contracts. As such, the ETF and ETN continue to roll over the next-month futures contracts at a lower price, thereby making profits. This signals continued bullishness in the soft commodity, paving the way for the rally in the sweetener. This trend is likely to continue, at least in the near term, acting as the catalyst for the commodity.
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Tap the Rally in Sweetener Prices With Sugar ETFs
Sugar has been on a tear this year on lower-than-expected production in some key regions that raised worries about tight global supplies. Raw sugar futures jumped to a six-and-a-half-year high, leading to a rally in sugar ETFs.
iPath Series B Bloomberg Sugar Subindex Total Return ETN and Teucrium Sugar Fund (CANE - Free Report) are up about 28% so far this year and hitting new multi-year highs.
Earlier-than-normal closure of many sugar mills in India, lackluster supplies from other countries, including Pakistan and Thailand, and the prospect for limited Indian exports have curtailed sugar output. India may not approve additional sugar exports in the year ending September, with output likely to be below target. Notably, India is the largest sugar producer in the world (read: Winning India ETFs Despite Adani Controversy).
The International Sugar Organization (ISO) recently lowered its forecast for the global sugar surplus in the 2022-2023 season, driven mainly by lower-than-expected production. The organization now projects a global surplus of 4.2 million tons in 2022-2023 (October-September), down from the previous forecast of 6.2 million issued in the previous update in November 2022.
The rise in sweetener prices is also supported by the potential for oil’s recent rally to spur Brazilian and Indian mills to divert more cane to making ethanol. Further, rains in Brazil are expected to slow down the early harvest pace, thereby threatening supply conditions.
On the other hand, demand for sugar is rising exponentially due to world population growth and the expansion of the global middle class. Rising demand and tight supply conditions will continue to boost sugar prices (see: all the Agricultural ETFs here).
We have profiled the ETFs below:
iPath Series B Bloomberg Sugar Subindex Total Return ETN
iPath Series B Bloomberg Sugar Subindex Total Return ETN follows the Bloomberg Sugar Subindex Total Return, which delivers returns through an unleveraged investment in the futures contracts on sugar.
The note has been able to manage $42.4 million in AUM and trades in a paltry volume of roughly 6,000 shares per day. It has an expense ratio of 0.45%.
Teucrium Sugar Fund (CANE - Free Report)
The Teucrium Sugar Fund provides investors an easy exposure to the price of sugar futures in a brokerage account. It uses three futures contracts for No. 11 Sugar that are traded on the ICE Futures. The three contracts include the second-to-expire ICE No.11 Sugar Futures Contract, weighted 35%, the third-to-expire ICE No.11 Sugar Futures Contract, weighted 30%, and the ICE No.11 Sugar Futures Contract expiring in March following the expiration of the third-to-expire contract, weighted 35% (read: Sugar ETF Hits New 52-Week High).
Teucrium Wheat Fund has amassed $32.6 million in its asset base and trades in a good volume of about 93,000 shares a day. It charges a fee of 22 bps per year.
State of Backwardation: A Positive for Sugar
Sugar is benefiting from the positive roll yield in the futures market. This is because the market is in a prolonged period of backwardation, where later-dated contracts are cheaper than near-term contracts. As such, the ETF and ETN continue to roll over the next-month futures contracts at a lower price, thereby making profits. This signals continued bullishness in the soft commodity, paving the way for the rally in the sweetener. This trend is likely to continue, at least in the near term, acting as the catalyst for the commodity.