August 9, 2010 - I'll Take Two Lumps, Please
Featured Trades: (SUGAR), (SGG), (CZZ),
iPath Dow Jones-UBS Sugar Subindex Total Return ETN
3) 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.
