Cash Sugar Market (SB-099)
For centuries, sugar has been a highly valued and widely traded commodity. Sugar cane production originated, according to historians, some 2,500 years ago on the Indian subcontinent. Today, sugar is a basic part of the production and consumption of many foods worldwide which has made sugar futures very necessary to hedge production and consumption price risk.
ICE Sugar #11 futures contracts are the benchmark for the world raw sugar market. Sugar is produced from sugarcane and sugar beets. Sugarcane accounts for about 70% of world sugar production. The most commonly used form of sugar is a white crystalline solid, sucrose. Sugar is used to alter the flavor of beverages and food. Sugar sucrose is extracted from sugar cane, sugar beets, or sugar palm by a refining process. Sugar is increasingly becoming the global feedstock of choice for the production of ethanol.
ICE Futures’ Sugar No. 11 contract is the world’s most heavily traded sugar futures contract. Its role as a global benchmark for the pricing of raw sugar has also earned it the name “World Sugar.” The size of the Sugar No. 11 contract translates into a relatively small underlying value per contract, making it attractive for hedgers and speculators alike, providing easy market access for global participants small and large.
Sugar is one of the world’s ten largest agricultural futures markets, the world looks to ICE Futures U.S. each day to price this vital commodity. For centuries, sugar has been a highly valued and widely traded commodity. What was once a luxury has evolved into a moderately priced and widely traded necessity. Produced in over 120 countries and consumed globally, sugar turns up everywhere from your coffee cup – as a food additive – to your gas tank – as the fuel additive ethanol.
A large set of commercial market participants, including producers, exporters, candy manufacturers, trade houses and a diverse set of institutional participants underscores the importance of sugar futures and options markets ensuring highly efficient pricing and continuous liquidity.
When following the sugar market it is very important to closely monitor the supply and demand fundamentals:
The most important sugarcane producing countries are Brazil, India, and Thailand. All of these countries are anticipating bumper crops.
Brazil – Brazil is the largest producer of sugar. Sugar output in Brazil’s main center-south cane producing region is expected to rise to record volume this season
India – India, the world’s second-largest producer after Brazil, has allowed exports of 500,000 tonnes of sugar following a bumper crop.
Thailand – Thailand, the world’s second-biggest exporter after Brazil, is forecast to produce a record 9.0 million, and export a record seven million tons of sugar in 2011.
When analyzing demand you need to consider sugar import demand and Brazilian ethanol demand.
Import Demand – Buyers in China, the second largest consumer after India, may take advantage of the recent slump in prices to increase sugar imports in order to replenish their dwindling supplies.
Ethanol Demand – Brazil exports what it does not use domestically for ethanol. The sugar equivalent price of ethanol in Brazil is currently 18 to 20 cents a pound. The price of world sugar needs to drop below that level to encourage producers to reallocate cane to ethanol.
These are just some of the basic fundamentals to keep in mind when you are considering a trade in the sugar market. Before opening up a commodity account to trade sugar you should consult with a licensed commodity broker that follows the sugar market to discuss trading strategies.