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I’ll Take Two Lumps, Please
It’s just a matter of time before global buying of the grains spills over into the sugar market.
A combination of torrential rains in Brazil, the source of 54% of the world supply, and draughts in India, sent prices to a 35 year high of $31 cents a pound last year.
Since then, prices plunged by 52% to 14 cents on rumors of new bumper crops, making sugar the world’s worst performing asset. But new shortages are looming on the horizon. It’s raining again in Brazil, causing a major shipping bottleneck. Thailand, the world’s second largest exporter, will flip to a net importer. Blasting heat in Europe is killing off a large part of the sugar beet crop there.
The International Sugar Organization says that global supplies are at a 30 year low, while the US Department of Agriculture claims our stockpiles are at a 40 year nadir. Major consumers, like the soft drink and food industries, are already marking up product prices. To top it all, China is developing a sweet tooth, a rising standard of living enabling them to increase their own consumption of richer, higher calorie foods.
When I get involved in this commodity, I do so through the sugar contract on ICE or NYBOT. There is also an exchanged traded note for sugar to look at (SGG). Equity investors should study Cosan ADR’s (CZZ), Brazil’s top cane producer.
While it’s clear that the train has already left the station, we’re already back up to 20 cents a pound, it is something to entertain on dips. It certainly beats the hell out of buying ten year treasury bonds at a ridiculous 2.88% yield.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “Hedge Fund Radio Archives".
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I dunno... I'd buy corn before sugar.
Part of me wonders if food commodities is the last area where there's still room to drive prices up. Look at BHP/Potash this morning. Having said that, this could be the dumbest 'investment' to get into yet - I've also noticed there's now ads for Commodities ETFs on BNN (Business News Network in Canada).
This will not end well.
I remember when corn and rice went to all time highs a couple of years ago. Prices get too high and there will be food riots and calls for price controls or outright nationalization in some cases.
Rice shortages were hyped a couple of years ago but there was a lot of stupid hoarding that made it worse.
http://news.yahoo.com/s/ap/as_philippines_too_much_rice
http://www.theolympian.com/2010/08/06/1328049/wheat-rots-in-india-as-wor...
Hopefully prices crash back down before that happens.
which future is SGG investing in? I looked at sugar futures, and they seem to be in backwardation (for sugar #11), so maybe you won't lose your a$$ in SGG like some of these other products when they churn futures.
Industrial sugar users are trying to get stevia accepted as novel food / sweetener.
This has the potential to wipe out European sugar farmers and others.
1 out of 65 male babies born in the US has a form of autism...a reported link to artificial sweeteners is the cause...there is also a lawsuit that a judge has to rule on that would prohibit the use of GMO sugar beet seed. There is a shortage of non GMO beet seed according to my beet growing neighbors.
1 out of 65 have a form of autism?
Looks like there will be a lot of Presidential candidates running for office in the near futur :)
I'm a buyer above 20, but it got hammered on a nasty double top yesterday. Has to get penetrated first.
In part there's some decption in this market- not that Sugar isn't supply-constrained, rather the market fro artificial sweeteners is well, well below capacity. It's so much easier to make a chemical substitute, of course, it tastes terrible which is why it never caught on. ..Soon enough we'll be hearing how wonderful these things are. And kids aren't so stupid- they know the cost of can of coke, with this uncertainty the majot market for sweetener is down. ..Sure, it's a profitable trade, personally though, it's like making money on Russian wildfires- structurally flawed. Also, it's not a great price to come in on, yes, it'll go up, but it's better for those who like scalping, look around for a trade that's inflecting, no.
The irony of a higher standard of living - or at least higher per capita GDP - being spent on lower-order carbohydrates. Next: China insulin and obesity plays.