Sugar prices and commodity-related exchange traded products are rallying toward a nine-month high as El Nino added to concerns about harvests and energy producers soaked up supply to produce ethanol.
On Tuesday, the iPath Dow Jones-UBS Sugar Total Return Sub-Index ETN (SGG) rose 2.7% and Teucrium Sugar Fund (CANE) gained 1.0%. Over the past three months, SGG surged 28.9% and CANE jumped 14.0%. However, SGG is still down 6.6% and CANE is 16.8% lower year-to-date. [Commodity ETF Opportunities During El Niño]
ICE sugar futures were up 2.5% Tuesday, hovering around $0.1549 per pound.
Sugar futures are gaining momentum as a return of the El Nino weather phenomenon led to drier conditions diminishing output in India, the smallest crop in a decade across China and heavy rains in Brazil that has slowed harvesting, reports Isis Almeida for Bloomberg.
Additionally, rising demand in Brazil for ethanol use in cars, along with higher prices for the fuel, has increased expectations that sugar canes could be used to produce energy, further lowering the supply outlook, reports Emiko Terazono for the Financial Times.
The drop in the real currency over the past year has made ethanol an attractive alternative to higher-priced, U.S. dollar-denominated gasoline.
The European Commission has reduced its sugar output forecast for 2015-2016 by 4%, projecting production of 15.1 million tons, or a 22% drop year-over-year.
“The market is finally reflecting changing fundamentals,” Kona Haque, head of research at commodity traders ED&F Man, told the Financial Times.
Speculators are turning bullish in light of the tightening fundamentals.
“Short-term oriented market participants are also betting on a price-driving tightening of sugar supply,” Commerzbank told the Financial Times, adding that hedge funds and other financial investors switched to net longs for the first time in over a year.
iPath Dow Jones-UBS Sugar Total Return Sub-Index ETN
For more information on the sugar market, visit our sugar category.
Max Chen 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.