Sugar Market Trading Defined and Explained
Sugar is widely produced, traded and consumed around the world. Sugar is produced from either sugar cane or sugar beets in more than 120 countries and consumed in every country. Sugar is used in everything from food to industrial applications. Because sugar is grown in so many countries, one of the themes that is more prominent in this marketplace than in most others is government involvement in protecting domestic producers by instigating tariffs and other trade restrictions that sugar futures traders must understand and take into account.
World Sugar Prices & Rates
The contract size for #11 world raw sugar futures traded at IntercontinentalExchange (ICE, formerly the New York Board of Trade) is 112,000 pounds (50 long tons).
- Raw sugar is any crystallized sugar product from a cane sugar production facility delivered in bulk.
- The minimum price movement for these sugar futures is 1/100 cent per pound or the equivalent to $11.20 per contract.
- Sugar futures contract months are March, May, July, and October.
Refined white sugar futures are traded in London at Euronext.liffe and call for delivery of white beet or cane crystal sugar or refined sugar of any origin that meets specific requirements.
- The size of the white sugar futures contract is 50 metric tons.
- Pricing is in U.S. dollars per metric ton with a minimum price fluctuation of 10 cents per metric ton or $5.
- Contract delivery months are March, May, August, October and December with eight months available for trading.
Sugar Futures Trading Fundamentals
The value of physical sugar is influenced by its location. If a large buyer enters the market, potential sellers to that buyer would look for sugar located as close as possible to the destination to save on shipping costs. For example, in the case of raw sugar, normally the Far East region is well-supplied with raw sugar from Thailand, Australia and South Africa. But sometimes, with unexpectedly large crop failures, there could suddenly be a shortage of sugar from one of these origins, making shipping from another region economically feasible. So successful sugar trading may depend on knowledge of the shipping industry as much as normal supply-demand factors.
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Sugar Trading Tips for Sugar Traders
As is the case with many tropical commodities, the key country that sugar futures traders need to monitor is Brazil, the largest producer and exporter of sugar. Weather, political issues, the value of Brazils currency, the real, ethanol production and other factors all need to be monitored for their impact on world sugar prices and trade. Hurricanes in the Caribbean, which can devastate sugarcane crops in the United States, Cuba and elsewhere around the rim of the Gulf of Mexico if they strike at harvest time, can also send sugar futures prices higher.
Sugar traders must also continually assess whether raw sugar of a particular origin is in short or plentiful supply. The problem for buyers and sellers of physical sugar is that although they can hedge their cargoes of sugar on the futures market, they cannot hedge the premium or discount element in the price, such as tariffs or changes in shipping rates. Other factors apart from supply also have a bearing on the level of the premium or discount for trading sugar. The quality of the sugar may also be reflected in its value although there have been some occasions when strong demand for a lower quality has distorted this requirement.
Sugar Futures News
With the widespread interest in sugar production and consumption, there are many sources of information about sugar supply-demand and trade on a local basis and internationally. As an active global market, many rules and standards for quality and pricing in the sugar processing industry are well-established and understood.
Among the sources of information for sugar futures traders are the following:
- Sugar Traders Association of the United Kingdom (STAUK), founded in 1952 by sugar trading companies based in London, provides information, sugar news and analysis of trends for the sugar market.
- The Sugar Information Service produces the website OnlineSugars.com, providing history and analysis of the international sugar trade.
- The Sugar Research Institute is Australias premier sugar processing research and development organization for client research and produces many Australian sugar industry reports.
- The Foreign Agricultural Service of the U.S. Department of Agriculture provides a large amount of domestic and world production and price information for the sugar trading market as well as for all tropical markets.
Sugar Trading Supply
Sugar is produced from two different crops in two kinds of growing conditions, sugarcane in tropical areas and sugar beets in more temperate zones. The refined sugar product of each is identical. Sugarcane accounts for about 70% of world sugar production with the largest producing countries being Brazil, India, China, and Thailand. The leading sugarcane producing states in the United States are Florida, Louisiana, Texas and Hawaii. The leading countries for sugar beet production are Europe, United States, China and Japan. The main sugar beet states in the United States are Minnesota, Idaho, North Dakota and Michigan.
Sugar Trading Demand
Sugar is consumed in every country, with an estimated 70 percent of sugar production worldwide consumed in the country that produces it, making sugar an important domestic crop economically as well as a major revenue source for sugar exporting countries. About 80 percent of world sugar import demand comes from developing countries. Sugar futures prices have ranged from 64 cents per pound in October of 1974 to less than 2 cents a pound in the late 1960s.
Sugar has been subject to increasing competition from alternative sweeteners such as high-fructose corn syrup used in soft drinks and elsewhere. On the other hand, sugar has been the major source for ethanol in Brazil since 2006, which has increased sugar demand and prices, a trend that is likely to continue as long as high crude oil prices continue to make ethanol produced from sugar economical. Brazil is both the largest exporter of sugar and the largest producer and user of ethanol.
History of Sugar Trade
Sugar cane made its entry into the New World early. Columbus himself introduced the crop to Hispaniola on his second voyage in 1493. The first record of a substantial quantity of sugar was of three ships arriving in Spain loaded with sugar in 1525. By 1530, 12 ships arrived carrying 1,500 tons of sugar. The sugar trade exploded and by 1546, there were a total of 24 sugar mills on the island.
The #11 world raw sugar futures market has been in existence since 1914 and is the most actively traded softs commodity market.