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Sugar Prices Fall: ETFs in Focus

Zacks Equity Research
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Sugar prices have taken a beating lately as world production soars to record levels. The soft commodity is facing a tough time as people are consciously shifting loyalties toward healthier options, leading to falling demand.  iPath Series B Bloomberg Sugar Sub index Total Return ETN SGGB and Teucrium Sugar CANE have fallen 0.99% and 0.75% respectively over the past one week (as of Aug 24). Year-to-date, sugar prices have fallen at least 32% -- the largest percentage drop so far in the major commodity segment (see all Agricultural ETFs here).


The production level is not affected majorly by falling prices as sugar is classified as a special species of grass that could be cut for five-six years straight as it is hardly dug up to plant any other crop. India, the second-largest producer of sugar in the world, allows the cane to be priced high to win the support of farmers thereby resulting in excess production to earn profits. Both India and Thailand -- the fourth-largest sugar producer -- are having gigantic production levels this year.


The forecast total domestic sugar use for the 2018-19 fiscal year is only a 0.06 million metric ton increase from last year by the U.S. Department of Agriculture as demand has slid in the European Union, Australia and the United States.  According to United Nations Food and Agriculture Organization or FAO, sugar consumption in China for the 2018-19 marketing year is forecast to stand unchanged at 15.7 million tons, with growth “limited by increasing health concerns and competition from sugar and sweetener replacements (see: 4 Sector ETFs That Crushed S&P 500 in Longest Bull Market).”


FAO forecast record levels of 187.6 millionmillion metric tons of sugar production in the 2017-18 marketing year, marking an increase of nearly 11% from the previous year.  Going by the figures, supply of sugar will exceed utilization by nearly 17 metric tons leading to piled up inventories in the importing and exporting countries as per FAO’s published report in July. Cost of production for efficient producers could go up in the near future as bankruptcy may hit them with a mismatch between demand and supply  (read: Warm Weather is Nurturing These Agriculture ETFs).


Having said all, we would like to highlight that investors seem to be still interested in the sugar ETFs as the year-to-date fund flow is $19.3 million for SGGB and $12.5 million for CANE.  Gilbertie, whose company sponsors CANE states that inflows from investors are "taking a view that sugar prices could be at or near a multiyear cyclical bottom."


Below, we highlight the sugar ETFs:




This fund tracks the Bloomberg Sugar Subindex Total Return, which generates returns by unleveraged investment in the future contract of sugar.  The fund’s AUM is $23.9 million and expense ratio is 0.45%. The average trading volume is 9000 shares. The fund generated 0.99% returns in the past week. 




This fund tracks Sugar Futures and seeks to provide sugar exposure without the need for a futures account and aims at reducing the effects of backwardation and contango. The fund has AUM of $14.7 million and an expense ratio of 1.68%. It has a very liquid base, with nearly 56000 shares traded daily. The fund has generated 0.15% in the past week. It has a Zacks ETF Rank of #4 (Sell) and a High risk outlook.


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TEUCRM-SUGAR FD (CANE): ETF Research Reports
IPATHBB-SUGR SI (SGGB): ETF Research Reports
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