SUGAR FUTURES

Sugar cane originated some 2,500 years ago on the Indian sub-continent. For centuries, sugar has been a highly valued and widely traded commodity. Because of its primary use in foods prepared in many cultures, its trade value was based upon its universal use, not only as a flavor enhancer but also as a food preservative. Sugar’s market significance was further increased because of its fermenting properties and its byproducts (e.g., molasses), which had equal or greater economic value than the granular sugar and less perishability when shipped long distances.

As the sugar market grew more global in nature during the twentieth century, it became more vulnerable to supply and demand shifts in various parts of the world. Before the development of the sugar beet industry, the semi-tropical location of the original sugar cane source meant that supply routes were long, tenuous, and easily disrupted. The closing of the European markets for sugar during World War I represented such a supply disruption.

Today, sugar remains a vital commodity in the world marketplace and has expanded its presence in a broad range of economic areas from foods to fuels. Sugar prices trade up and down, due to a variety of factors, including extreme weather, disease, insects, trade agreements, refinery activity, and government price support programs. Sugar futures and options represent essential hedging tools for producers, exporters, candy manufacturers, trade houses, bakers, refiners and dealers. In addition, individual investors and speculators trade sugar futures and options in hopes of realizing profits from changing prices.

NYBOT Sugar Futures Specifications
Name and Symbol: Sugar #11 futures, New York Board of Trade, SB

Minimum Tick Size and Value: 0.01 cents per pound ($0.0001), worth $11.20 per contract.

Available Trading Months: Primary trading months for sugar futures and options are March, May, July, and October.

On November 23, 2005, the USDA said that 2005-2006 world sugar production will total 144.2 million tons, up from 140.8 million tons the previous year. Despite the forecast of higher production, ending stocks are expected to fall from 35.1 to 31.5 million tons, or 21% of annual use, the lowest stocks to use ratio in eight years. This sounds bullish, but you should be aware that the USDA commonly revises its data as far back as four years or more (fundamental analysts beware). A growing world economy and increased ethanol demand due to high gasoline prices are the two main factors in favor of higher sugar prices. Brazil, the world's largest producer, is supposed to produce 28.7 million tons in 2005-2006, up from 28.2 million tons the previous year.

On November 14, 2005, the International Sugar Organization estimated 2005-2006 world production at 149.7 million tons and consumption at 150.7 million tons. They also estimated that sugar will post a 2 million ton production deficit in 2006-2007.

Brazil will have to harvest 673 million metric tons of sugarcane by 2013 to meet world demand, with total production forecast at some 40 million tons of sugar and just over 30 billion liters of ethanol, said local sugar consultancy Datagro on Tuesday.

The country's (Brazil's) sugar-cane-based biofuel is clean-burning, renewable and costs half as much as gasoline at the pump in Sao Paulo. Better yet, cane ethanol yields eight times the energy needed to make it, compared with U.S. corn-based ethanol that is energy-inefficient and costs almost three times as much to produce. As long as crude-oil prices stay above $30 a barrel, Brazilian ethanol, which costs $26 a barrel to produce, is cost-competitive, attractive and sustainable to boot.
Barron's. October 31, 2005.