Sugar Prices: The Next Bull Market

August 26, 2009by CaraTan

Ants eating sugar

Singapore, 26 August 2009. Veteran investor Jim Rogers is confident sugar trading will return some sweet profits in the coming years. Rogers knows a thing or two about profits, having founded The Quantum Fund with George Soros in 1970. But why sugar?

Singapore-based Rogers offers some very compelling reasons supporting sugar's growth potential. First of all, there is a global shortage of sugar due to abnormal weather conditions in India, China, and parts of Brazil.

India's weather problems were so severe that it had to actually import sugar this year - normally it has a sugar surplus for export. Also Indian farmers have moved to produce other crops that simply pay better than sugar. This contributed to a 40 percent drop in production, creating widespread supply problems.

According to S.L. Jain, departing director-general of the Indian Sugar Millers Association, there has been a 72 percent price increase for crops in India, but sugar cane has only increased 24 percent, making it an unattractive crop to farm.

"We are happy if we can meet our requirement which is increasing every year because population is increasing. Maybe in good times when the weather is very good, but I cannot see any exports of sugar taking place from India," Jain added.

Similarly, China also experienced bad weather resulting in a low sugar yield. China's Ministry of Industry and Information Technology reported that the nation's output dropped 12.9 percent from January to May of 2009, compared to the same period in 2008.

China's decline is on par with global figures. F.O. Licht have cut their forecast of production in 2008/2009 to 149.3 million tons from the February estimate of 156.3 million tons, which is a 12 percent decrease on 2007/2008 production.

All of these supply shortages mean that prices will only rise, and sugar may be a good buy now.

Sugar shortages are also hurting the US, according to some. On August 5, Hershey Co, General Mills Inc., and Kraft Foods Inc., sent a letter to U.S. Agriculture Secretary Tom Vilsack warning that, "our nation will virtually run out of sugar."

Though Jack Roney, director of economic and policy analysis at the American Sugar Alliance said otherwise, "There is absolutely no shortage of sugar here."

Cries of a US sugar crisis are contrary to the usual situation in the US which in fact encourages over-production and wasting of sugar. Price floors, loans, and import restrictions are measures led by the sugar lobby to maintain artificially-high prices.

If market prices drop too low, the sugar producers are protected as the government will buy their unsold sugar. It is then stored in warehouses and much of it goes to waste.

Don't even think about giving that unneeded sugar to poor or developing nations that need it - imagine how badly it would ruin their local sugar industries.

Yet this surplus today doesn't seem to be the case, and is one of the main drivers behind Rogers's bullishness on sugar.

Rogers notes "there are 3 billion people trying to have a better life and most people when they get more prosperous, use more sweets."

Sugar consumption ranges from about three kilos per person per year in Ethiopia to a whopping 40 in Belgium. It's been said that as a rule, this level rises and levels off at around 35 kilos per person as per capita income increases in a nation.

China, India, Indonesia and much of the emerging wealth will continue to drive this sugar demand until they hit their 35 kilos per person per year.

According to the USDA, sugar consumption is expected to rise an additional 1.5 million tons by 2010. Much of this will be from sugar-based ethanol.

"Sugar is still very depressed on any kind of historic basis and I suspect it will go higher," Rogers added. "I wouldn't sell sugar. I don't know if it is going to go up in the next week or the next month, but I am certainly expecting sugar to go much higher during the course of the bull market over the next several years."

    Some facts about the sugar market:
    • The price of sugar has risen 80 percent since January 2009.
    • This year, sugar has surpassed the 21-cent per pound mark - the highest it has been in 28 years.
    • Sugar is 70 percent below its record high in 1974.
    • Brazil's center-south sugar production for the 2009-2010 season is up 61.8 percent over the previous year.

  • Brazil's ethanol production was up 63.2 percent over last year, a big driver in sugar demand.

Vladimir Gonazales,

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