Like other commodities, sugar is seen as a "sweet" haven from financial market turmoil and dropping equity prices. Produced in more than 135 countries from its two main sources: sugar beets and sugarcane, Sugar not only satisfies a person's sweet tooth, it also provides investors with an almost reliable avenue of diversifying portfolios. Although comparable to other investment instruments, betting on this precious sweet-tasting soluble carbohydrate comes with risks. However, by knowing how to work your way through the many different investment options, one can find lesser riskier paths to investing on this commodity.
Thinking of trading sugar with eToro?
77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
History of Sugar
The process of harvesting sugarcane dates to 8th century BCE in the region of the Indian subcontinent. Originally, people just chewed on the plants to taste its sweet juice until Indians discovered the process of turning the plant's juice into granulated sugar crystals sometime in the 5th century CE.
Come early 12th century, sugar trading centered in Europe with Venice becoming known as its main refining center by the 15th century. During the same period, sugar "swept through society" as it reached more locations and became more available. By the end of the 15th century, production reached 1,400 tonnes annually.
From the 19th century up to present day, sugar is found in almost every household kitchen in the world reaching an annual production of 179 million metric tons in 2020.
What Affects Sugar Prices?
The price of Sugar in the world market follows the pattern of its seasonal harvests around the world. Generally, with Brazil being the largest producer in the world, the yield spell in this country greatly affects the value of this sweet commodity. Not only that, economic situations and currency fluctuations in the top producing countries like Brazil, India, Europe, USA and China can also drive the price of this commodity up or pull it down.
Aside from the production side, global demand can also cause the movement of its price. It would be important to note that China, Europe and the United States are the commodity’s top consumers in the world.
Technically, the value of sugar always follows the balancing trend of supply and demand. Another factor that shouldn't be overlooked, are the regulations and tariffs imposed by many countries. Several governments would occasionally subsidize sugar farmers in order to keep domestic prices to a low and prevent importation.
Other factors also include: ethanol demand (which is used in the production), health concerns and weather disturbances in high producing countries.
Where to Trade Sugar?
Here are several ways to trade for this commodity in the market:
- Futures: Both volatile and fairly liquid, sugar futures can be traded on the New York and NYMEX Division of CME Group, Brazil's Bovespa and the Intercontinental Exchange (ICE) in London. The two most prominent futures are the Sugar No. 16, a futures contract for US-grown sugar serving the hedging needs of end users, merchants and local producers, and the Sugar No. 11, a futures contract the world is using as a benchmark for sugar trading.
- Options: This is a derivative instrument that makes use of a leverage to open a trade in commodities. Similar to futures, options come with an expiry date. However, options investors shall pay a price referred to as premium to purchase contracts. An option investment only succeeds if the price of the futures rises higher than the stake price by a value greater than the premium paid for the contract.
- ETFs: Operating almost in the same manner as stocks investment with the key difference being in ETFs, it offers access to a variety of assets without requiring investors to bet all their money into 1 or 2 companies.
ETFs permits investors to lessen risk by providing a more diversified investment method while also maximizing the performance of a particular commodity or sector.
Well-known ETFs that invest in Sugar No. 11 are the Teucrium Sugar Fund (CANE), iPath Pure Beta Sugar ETN (SGAR) and the iPath Series B Bloomberg Sugar Sub-Index Total Return.
- Stocks: This is the method which a lot of investors are familiar with. The advantages of investing on the stocks of companies involved in the production and selling of this sweet commodity includes: having an option to select from a wide range of stocks and cashing out whenever you want and the simple and versatile access to market it provides. The Cons of this method is unlike ETFs, you end up betting all your eggs in one basket.
- CFD (Contracts for Difference): The concept of contracts-for-difference is quickly gaining traction on the market as main investment instrument. Credit goes to the many social trading platforms such as eToro, which makes investing easy and accessible to more traders, investors nowadays can naturally speculate on the price of stocks and commodities alike. Take note that the price of the CFD is the difference between the price of the asset at the time of the purchase and its present value.
What is Sugar No.11?
Sugar No. 11 is the market for the futures price of the unrefined version of this commodity that is also a common ingredient in food and key component in ethanol production. Considered as the worldwide benchmark for trading raw material, the price of the Sugar No. 11 is also seen as an economic indicator for major producing nations like Brazil.
The equivalent of the No. 11 futures is 112,000 lbs. of raw cane.
How to Start CFD Trading of Sugar?
There are several ways of engaging in CFD trading. All you need to do choose a reliable broker or sign-up on a CFD trading platform such as eToro to open an account and deposit your fund.
Investing on this commodity via the eToro's CFD trading platform doesn't require any storage fees since you won't be trading any physical assets.
How to Trade Sugar on eToro?
- Create an account on eToro / Log-in your account for existing users.
- Click "Discover".
- Select "Commodities".
- Choose “SUGAR”.
- Select BUY or SELL.
- Key in your desired amount to invest or the number of sugar units you want to trade.
- Review and set the stop loss, leverage, and take profit parameters.
- Select “Open Trade”.
Thinking of trading sugar with eToro?
eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.
Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
Past performance is not an indication of future results.
Cryptoassets are volatile instruments which can fluctuate widely in a very short timeframe and therefore are not appropriate for all investors. Other than via CFDs, trading cryptoassets is unregulated and therefore is not supervised by any EU regulatory framework.
eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity specific information about eToro.