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Sweet or Sour for Sugar ETFs?

Some agriculture exchange traded products are starting to keep pace with their energy and precious metals counterparts, which have led this year’s exchange traded funds commodities resurgence.

The PowerShares DB Agriculture Fund (DBA) is higher by nearly 2% over the past month. The PowerShares DB Agriculture Fund tries to reflect the performance of the Diversified Agriculture Index Excess Return, which is comprised of futures contracts on the most liquid and widely tracked agriculture commodities.

Within the world of agriculture commodities and softs, some or performing betters than others and there some concerns regarding sugar. After soaring more than 5% last Friday on heavy volume, the iPath Bloomberg Sugar Subindex Total Return ETN (SGG) is up nearly 7% this year. The Tecrium Sugar Fund (CANE) is higher by 10.5%.

Earlier this year, sugar futures jumped after the International Sugar Organization calculated that world production in the 2015 to 2016 period would fall short of production by 5.02 million metric tons, compared to previous estimates for a 3.5 million deficit, Bloomberg reports.

“A statistical deficit is clearly supportive for world prices,” the ISO said. Prices “can be expected to trend generally higher in the remaining months of 2015/16.”

ISO’s worst-than-expected projections comes a week after INTL FCStone anticipated a global supply deficit of 7 million tons. Sugar prices may be gaining momentum after the strong El Nino weather phenomenon hurt plantings in India, Thailand and Brazil, the world’s top producer.

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“Sugar futures have rallied off recent lows the past several weeks on concerns that the market would return to a deficit this season. However, the rally may be facing some headwinds, as dry weather in Brazil, the world’s leading Sugar cane producer, has allowed producers to get a good start to the harvest for the 2016-17 season,” according to OptionsExpress.

Moreover, Brazilian producers are also converting more sugar into ethanol to meet rising demand for biofuel, especially after the steep depreciation in the Brazilian real has made U.S. dollar-denominated crude oil costlier for domestic users.

“The market is still generally in a bullish trend, as prices remain above both the 20- and 200-day moving averages. The 14-day RSI has begun to level-off from much stronger momentum readings the past several sessions and is now reading a more neutral 55.94. Chart support is seen at the April 20 low of 15.01, with resistance found at the April highs at 16.09,” adds OpionsExpress.

Click here to read more ETF news, strategy and commentary on ETF Trends.

iPath Bloomberg Sugar Subindex Total Return ETN

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