Sugar is a subsidized commodity, and many governments worldwide subsidize the price to encourage production and supplies. In a February 22, 2023, Barchart article, I wrote, “While the trend in world sugar futures remains bullish, bull markets rarely move in straight lines. The first support level is just below 19 cents per pound, and the bullish trend will remain intact if sugar futures do not breach that level.” The nearby ICE sugar futures price has remained primarily above the 21 cents level, making a higher high in March. Sugar continues to sweeten and is on a path to challenge the October 2016 23.90 cents per pound high.
Sugar’s rally continues
After trading to a 9.05 cents low on the nearby ICE world sugar futures contract in April 2020, the soft commodity has moved steadily higher.
The chart highlights the pattern of higher lows and higher highs that took the continuous contract to a 22.14 high in February 2023. At over the 21 cents level on March 28, sugar remained in the bullish trend.
Input prices continue to rise as sugar is food and fuel
Inflation at the highest level since the 1980s makes producing all commodities more expensive. Labor, energy, fertilizer, and transportation costs have increased exponentially, putting upward pressure on agricultural commodities, and sugar is no exception.Brazil is the leading free-market sugarcane-producing country, and while U.S. futures trade in U.S. dollar terms, local labor costs in Brazil are in Brazilian real. A rising real versus the U.S. dollar tends to put upward pressure on sugar prices.
The chart highlights that while the real is not running away on the upside against the U.S. dollar, it has been making higher lows.
Corn is the primary ingredient in U.S. ethanol, but sugarcane is required for biofuel production in Brazil. Elevated gasoline prices increase ethanol demand, putting upside pressure on sugar prices.
The chart illustrates the rise in ethanol prices from the April 2020 80.05 cents low to over $2.20 per gallon wholesale.
Sugar is an agricultural product that is an essential ingredient in many foods, but in South America’s leading economy and most populous country, it is also a crucial input for the energy product that powers cars and other vehicles.
U.S. domestic sugar prices remain at a significant premium
Brazil produces sugarcane that grows in tropical climates, but beet sugar grows in more temperate environments. The U.S. and Europe subsidize sugar production to guarantee supplies by supporting growers. Subsidies distort the world price; they tend to be far higher than the free-market price.
May free-market sugar futures on ICE was at the 21.23 cents per pound level on March 28.
The chart shows U.S. subsidized sugar is at 17.52 cents or an over 82.5% premium to the world sugar price. Subsidized sugar has rallied alongside the world sugar futures and is close to the October 2021 38.85 cents high, the highest price since 2011.
CANE and SGG are ETF and ETN products that track sugar futures
To mitigate roll risks, the Teucrium Sugar ETF product (CANE) owns a portfolio of world sugar futures contracts, excluding the front month. At $10.89 per share on March 28, CANE had $24.730 million in assets under management. CANE trades an average of 73,441 shares daily and charges a 0.22% management fee. Nearby sugar futures rallied from 9.05 cents in April to 22.14 cents at the most recent high or 144.6%.
Over the same period, CANE rose from $4.91 to $10.90 per share or 122%. Since the most volatility tends to occur in the front month, CANE often underperforms the nearby contract on the upside and outperforms during price corrections.
The iPath Series B Subindex TR ETN product (SGG) is more sensitive to nearby world sugar futures prices. At $72.08 per share on March 28, SGG had $34.431 million in assets under management. SGG trades an average of 2,361 shares daily and charges a 0.45% management fee.
SGG rose from $29.71 in April 2020 to $72.69 per share in March 2023, a 144.7% increase, reflecting the sensitivity to nearby ICE world sugar futures prices.
Levels to watch over the coming weeks
As the market moves to the end of Q1 2023, sugar remains in a bullish trend.
The twenty-year chart shows the upside target, and technical resistance is at the October 2016 23.90 high, with critical support at 17.20 cents, the August 2022 low.
Sugar has not exploded higher, but the soft commodity’s price continues to sweeten on the upside in late March 2023.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
