M6 BARRON’S July 12, 2021
Rising Sugar Prices
Will Sweeten Portfolios
I
nvestors might want sweeten their
portfolios with a touch of sugar this
summer, as prices for the commodity
look set to continue rallying. A combi-
nation of existing crop damage, likely in-
clement weather in key growing areas, and
robust oil prices could lift sugar prices.
“The only way the potential sugar short-
age gets resolved is for the Asian harvests
to come in with big crops,” says Shawn
Hackett,president of financial firmHackett
Financial Advisors. He sees the price going
as high as 22 cents a pound, or about 25%
above a recent 17.6 cents.
Investors wanting to bet on a continued
rally should consider buying October-
dated sugar No. 11 futures contracts on the
ICE Futures U.S. exchange. Or you can
purchase the Teucrium Sugar exchange-
traded fund (ticker: CANE), which tracks
prices of sugar futures.
During the second quarter, the sugar
market went on a tear, gaining about 20%
since March 31. That surge was primarily
driven by dry weather in Brazil and the
resulting deterioration in the crop. For
optimal cultivation, sugar cane requires
warm, moist weather.
Last year, the 2020-21 season, Brazil
exported 32 million metric tons of sugar,
about half of global exports. For the cur-
rent 2021-22 season, the U.S. Department
of Agriculture sees those exports dropping
by approximately three million tons.
In addition to the dryness, falling tem-
peratures in late June probably further
damaged Brazil’s cane crop. “Frost is put-
ting even more stress on the crop,” says
Jake Hanley, portfolio manager at ETF
provider Teucrium. “Depending on the
extent of the damage, we could see the har-
vest pick up pace, which could be a signal
of additional yield declines.”
Savvy commodities dealers are now
focused on the crop from Asia and how it
could also get hit hard. Thailand and India,
the second- and third-largest exporters last
year, could see their sugar crops damaged
by a possible drier-than-usual monsoon
later this month,Hackettsays. “That could
start to become an issue for the market in
late July,” he says. The concern is war-
ranted because those two countries ac-
count for 21% of global exports.
However, the linchpin of this bullish
trade also requires the oil price to remain
robust, or roughly where it was recently,
at $77 for Brent crude. The cane harvest
in Brazil doesn’t go only toward making
sugar; some of it gets converted to ethanol,
which oil refiners blend into gasoline.
When oil prices are elevated, some
refiners increase their use of ethanol in
gasoline blends to save money, says Han-
ley. In turn, that increased ethanol de-
mand boosts demand for sugar, helping
keep prices higher. “Historically, you see
a correlation: With higher oil prices, you
get higher sugar prices,” he says.
Last weekend, the Organization of
Petroleum Exporting Countries failed
to reach an agreement on increasing oil-
production quotas, sending shock waves
through the market for crude.
But a beneficial deal could be struck
soon, experts say. “I think what will hap-
pen is they will hurriedly reach some sort
of agreement before the problem of quota-
busting becomes an issue,” says John
Rigby, head of European oil and gas
research at UBS in London. “It may take
a few weeks.”
Rigby says oil prices of $70 to $80 a
barrel would be a sweet spot for OPEC.
“It would suit them very well,” he says.
It would also suit the sugar bulls.
Sugar contracts being relatively thinly
traded means that investors should brace
themselves for potential lightning-fast
price movements. Forecasting weather and
how OPEC’s leaders will act can also be
tricky.
Still, betting on higher sugar prices
looks like a risk worth taking when the
pros and cons are weighed against each
other.B
By Simon Constable
COMMODITIES
NOTICEOFSECUREDPARTYPUBLIC
AUCTIONOFCOLLATERALINCLUDING
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INTERESTSINCLAVERNYLLCNOTICE IS HEREBY GIVEN that Jones
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intheCollateral,assuchtermisdefinedin
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