Commodities

India Supply Concerns Boost Sugar ETFs

Heavy rainfall and inclimate weather have taken its toll on India’s second largest producing state having many investors worried that global supply for sugar will not meet demand sending prices higher and providing positive price support to the iPath DJ-UBS Sugar TR Sub-Idx ETN (SGG), the PowerShares DB Agriculture Fund (DBA) and the UBS E-TRACS CMCI Agriculture TR ETN (UAG).

Elevated demand for sugar has resulted in a diminishing supply of global sugar stock levels, pushing levels to their lowest point in 20 years and prices of raw sugar prices back up towards their 30-year high levels.  Furthermore, yields in Uttar Pradesh, which is India’s second largest sugar producing state, have been cut enhancing fears that India may not produce the expected 25 million ton crop that the global market place has been hoping for, reports Caroline Henshaw of the Wall Street Journal

As for the near future, global demand for sugar is expected to remain elevated and continue to increase as the global population grows and the purchasing power of emerging nations increases.   This global imbalance in supply and demand will likely provide positive price support to the previously mentioned ETFs.

  • iPath DJ-UBS Sugar TR Sub-Idx ETN (SGG), which is a pure play on sugar. SGG is an unsecured, unsubordinated debt security linked to an index designed to reflect the returns available on an unleveraged investment in futures contracts on sugar.
  • PowerShares DB Agriculture Fund (DBA), which gives exposure to agricultural-based commodities through the use of futures contracts; DBA allocates 12.5% of its assets to sugar futures.
  • UBS E-TRACS CMCI Agriculture TR ETN (UAG), seeking to track the performance of the UBS Bloomberg CMCI Agriculture Index Total Return, which measures the collateralized returns from a basket of 10 futures contracts representing the agricultural sector; UAG currently allocates 16.58% of its assets to Sugar #11 futures contracts and 4.28% to Sugar #5 futures contracts.

Although an opportunity seeks to exist in the sugar markets, it is equally important to consider the inherent risk and volatility involved with investing in the agriculturally-driven commodity.  To help mitigate the effects of these risks and volatility, the use of an exit strategy is important.  Such a strategy can be found at www.SmartStops.net.

Disclosure: No Positions

Categories: Commodities, ETFs, Recent Articles

Tagged as: , , , , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s