Not So Sweet: Sugar ETN Enduring Dreadful 2013

ETF Trends

It has been said that misery loves company. If that is indeed the case than sugar bulls can find solace in knowing that one of the world’s most consumed commodities is languishing along with plenty of others such as gold and silver. [Gold ETFs Lose Their Allure]

To its credit, the iPath DJ-UBS Sugar TR Sub-Index ETN (SGG) has outperformed the SPDR Gold Shares (GLD) on a year-to-date basis. That is not saying much, however, as SGG is down 15.7% compared to an 18.6% tumble for GLD.

Things were not supposed to be this way for sugar futures and SGG, which tracks a basket of those futures. In March, the U.S. Department of Agriculture said it was mulling purchasing 400,000 tons of sugar to support defaulting U.S. sugar processors to bolster profits for companies that turn sugar beets and sugar cane into granulated sweetener. [Sugar ETFs Sweet As Government Mulls Bailout]

SGG did get a lift on the news, but the ETN has steadily traded lower since then and at no point this year has it traded above its 200-day moving average. On that note, SGG has only spent a handful of days in 2013 trading above its 50-day line.

Supply concerns have been weighing on sugar as traders have priced in expectations for a record crop out of Brazil, the world’s largest producer of the commodity. On Tuesday, sugar prices fell to the weakest level since August 2010 as sugar growers in Brazil’s center-south region are forecast to harvest a record 589.6 million metric tons of sugar cane in the 2013-14 season, according to Unica, Brazil’s sugar industry association, Investing.com reported.

The glum headlines of forced SGG lower by 6.2% in the past month and the ETN has made a series of lower highs and lower lows, an ominous technical sign to go along with the already ominous laboring 13.8% below the 200-day moving average.

At this juncture, trying to catch a bounce in SGG, an ETN that is sporting year-to-date volatility in the area of 20%, is akin to catching a falling knife. However, there might be at least one sign that SGG could provide some near-term upside for adventurous traders.

In late April, companies took delivery of 1.43 million metric tons of sugar, worth $558.3 million at the time, despite the supply glut, Leslie Josephs reported for the Wall Street Journal. That was the biggest delivery of physical sugar in 24 years, according to the Journal.

If major sugar buyers, such as consumer staples companies, continue that trend then SGG has a chance to bounce. However, sugar’s reputation as one of the most volatile commodities on the market means SGG is a speculative trade, not a core portfolio holding.

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ETF Trends editorial team contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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