Sugar
Sugar trading is one of the most popular forms of commodities trading worldwide. This asset is highly volatile due to an array of supply and demand impacts, making it an attractive opportunity to day traders and long-term investors alike. There are many approaches to be taken when speculating on sugar prices, the most popular being futures contracts. This 2024 sugar trading guide will explore these instruments in more detail, including how to get started and example trading strategies. We have also compiled a list of the best brokers for sugar trading below.
Top Sugar Trading Brokers
What Is Sugar Trading?
According to global statistics, the sugar market will be worth more than $50 billion by the end of 2022. Its significant versatility has seen it become a popular commodity within the global trading environment. Global interest and investments have increased massively, with retail traders choosing this market due to its size and unpredictable nature.
Sugar trading is simply the speculation of the price of the commodity. Many individuals trade sugar as part of their portfolio diversification or due to its emerging market demand growth. A popular sugar trading method is to speculate on short-term bottlenecks in supply.
Even though sugar is used across the world, its price is generally determined within only a few market exchanges. These include the Intercontinental Exchange (ICE), Kansai Commodities Exchange (KEX) and the National Commodities and Derivatives Exchange (NCDEX). The Sugar No 11 contract is the world benchmark contract for raw sugar trading, available on the Intercontinental Exchange.
Why Trade Sugar?
Sugar trading is used to speculate or hedge existing positions based on future changes in the growth of emerging economies. As consumers in these countries accumulate more purchasing power, their appetite for products derived from sugar may increase. Trading in sugar can therefore be a good way to capitalise on these global trends.
As with most commodity products, sugar is priced in USD, meaning it is also a way to trade on a weak US dollar. Another common reason for investing in sugar is to hedge against inflation, with the sugar trading price usually rising in line with consumer prices.
History Of Sugar Trading
Sugar has been around for millions of years, originating in India and Southeast Asia. It became a commodity of interest when it was discovered that the juice of the cane plants could be used to prepare food and processed into granulated crystals.
The idea of exportation and storage was established around the 5th-century CE. By the 19th century, the commodity was seen as a necessity and household utility, becoming so popular that it would have social and economic impacts felt across the world. Diverse applications including preservatives and flavours make it an important commodity today in the global market.
Currently, the biggest producer and exporter of sugar in the world is Brazil (21% of total production and 45% of total exports). India follows closely behind, though these two have historically swapped around for the top spot. Quota and licence requirements keep the exporters aligned to global minimum requirements when producing the commodity.
What Influences The Price Of Sugar?
Most sugar production occurs in a few countries across the world. The top producing countries include Brazil, India and Thailand. Below, we outline some key influences in the price of sugar to determine trading patterns:
Weather
Climate change patterns can play a significant role in the sugar supply. Crop production requires specific conditions, including enough rainfall within the growing season. Poor weather conditions within just one of the top producing countries can have a significant impact on global supply and sugar trading volumes.
Health Concerns
Governmental parties across the globe are under growing pressure to highlight links between significant illness and health concerns and sugar consumption. This can result in increased taxes or restrictions against products being implemented.
In the UK this has already been seen, with the government recently implementing a levy to the Treasury against some sugar trading and manufacturing companies. This may result in a decline in sugar utilisation and a fall in prices.
Ethanol
The price relationship in Brazil between ethanol and sugar can create significant price swings, as sugarcane can be used for ethanol distillation. 75% of the region’s mills can undertake this process, meaning that, if the demand for ethanol increases, traders could see high sugar prices in the market.
Brazilian Real Value
Brazil is the world’s top producer and exporter of sugarcane. It supplies up to 50% of the globe’s sugar each year. Fluctuations in the nation’s currency (BRL) can have a major impact on sugar prices. When the currency is weak, the country has an incentive to benefit from greater purchasing power and export to countries with strong currencies.
Today’s Sugar Trading Price
How To Trade Sugar
There are various ways you can get involved with sugar trading, including futures, CFDs, options, shares and ETFs. Below, we outline some of the top ways to trade the commodity.
Futures
Futures are a derivative instrument through which investors enter an agreement to buy or sell a fixed amount of a commodity at a pre-determined price on a fixed date. This is beneficial vs other trading strategies as traders do not need to pay the full cash amount upfront or own the underlying asset. If sugar prices decline, traders must deposit additional margins to maintain their positions.
Sugar futures are traded on the Intercontinental Exchange (ICE) in contract months January, March, May, July and October. These futures are traded under the name sugar #11. This is considered the benchmark for trading raw sugar around the world.
This is the main commodity futures contract, though sugar #16 is used for the delivery of cane sugar in the US. Each sugar futures contract represents 112,000 lbs of raw cane sugar. Sugar 11 futures trading hours are 03:30 – 13:00 CT.
CFDs
Another speculation strategy for sugar trading is through CFDs. The value of a CFD is the difference between the price of the commodity at the time of purchase and the current price. Many global brokers offer CFDs on sugar.
Traders can utilise leverage, meaning that you may only need to deposit a small margin amount to gain exposure to the full contract value. Investors can open a long or short position on the price.
Options
Sugar options trading contracts are available via NYSE Euronext (Euronext) and the Tokyo Grain Exchange (TGE). Options are available in two classes: calls or puts. Traders can use either strategy depending on price movement speculation. Investors should purchase call options if bullish about the price of the commodity.
Traders that believe the price of sugar will fall should purchase put options. Sugar options offer several advantages, such as additional leverage and the ability to limit potential losses.
Shares
Another sugar trading strategy is to purchase stocks from top trading or production companies in the world. This is an accessible and simple method to access the market. It should be noted that retail traders that want to invest in sugar stocks will need to take a different approach as there are no pure-play global public sugar-producing companies trading on major U.S. stock exchanges.
Therefore, you may need to invest in companies involved in sugar exporting or other end uses instead.
Sugar-producing company share prices are heavily influenced by the price of the commodity but can offer a good value vs speculating on the commodity itself. Some of the top sugar trading companies in the world are located in Germany, the UK and Brazil. These include Sudzuker AG, British Sugar PLC and Cosan SA Industria & Comercio.
ETFs
Sugar exchange-traded funds (ETFs) aim to track the price of the commodity by trading a basket of financial assets on a stock exchange.
Alternatively, traders can speculate on the industry using exchange-traded notes (ETNs); a newer financial instrument that also trades on a stock exchange. While they may often have lower index tracking errors, they are also less popular, which can result in liquidity risk.
For example, the Barclays iPath Dow Jones-UBS Sugar Total Return Sub-Index (NYSE: SGG) tracks the price movements of the Dow Jones AIG Sugar Sub-Index. WisdomTree Sugar is an exchange-traded commodity (ETC) and its securities can be created and redeemed on demand by authorised participants and traded on an exchange just like shares in a company.
Pros Of Trading Sugar
Sugar trading offers several advantages:
- Range Of Trading Instruments – A variety of instruments can be applied to sugar. The commodity can be invested in via futures contracts, options, CFDs, ETFs and more.
- Portfolio Diversification – Commodities like sugar generally have low associations with other financial assets, including stocks. This makes them a great way to diversify and protect wider portfolios.
- Trade With Leverage – Through several available instruments, sugar trading can support positions with high leverage or margin, allowing traders to open trades of higher value than their capital – though this increases both risk and reward.
- A Volatile Commodity – Significant price swings have been seen in the history of the commodity. The impact of climate conditions, global demand and health concerns in the news can create major shifts and prove it an exciting market to trade.
Cons Of Trading Sugar
There are also some disadvantages to trading sugar:
- Social Impact Of Sugar – Some view sugar as a major concern in today’s social landscape. Rising concerns of the link of sugar to diseases, illness and obesity may result in a global demand slump.
- Commodities Can Be Complex – As a trader new to commodities, understanding the difference between spot markets, futures and other instruments can be puzzling. This may be best left to experienced investors with the basics of trading behind them.
- Strength Of The US Dollar – Typically, there is an inverse relationship between the value of the US dollar and the price of commodities like sugar. The dollar is used as the benchmarking mechanism for the majority of commodities in the world, hence, if the value drops, it costs more to purchase commodities. Keep an eye on price quotes within the US Dollar Index as this will impact the price of sugar.
Sugar Trading Strategies
Since sugar is a popular commodity to trade, strategies used for other asset classes can be employed for sugar trading. These should be selected based on market knowledge and risk appetite. Sugar can be volatile with large intraday swings but it has the potential to hold a long-term trend over months. These characteristics make it suitable for both day traders and position traders. Here we outline some popular sugar trading strategies:
Support & Resistance
In this range trading method, traders identify levels of support and resistance in an asset’s price movement. It requires analysis of price charts and economics to predict when the price will stop and reverse. When the price nears the support line, traders should buy, and when the price nears the resistance line, you should sell.
Breakout Strategy
Breakout refers to the application of support and resistance lines to identify when the price moves beyond one of the levels. By opening a position in the direction of the breakout, traders may be able to capitalise on the low price of sugar before a significant period of price growth or vice versa. In the context of sugar trading, breakout investors will often aim to make a prediction about global supply for the upcoming year and open a position accordingly.
Fundamental Trading
As with all assets, doing your research before and during trading is essential. Since sugar is a soft commodity, this is particularly important. The sugar trading price can be heavily influenced by the news and other external factors.
Being wise to news stories that could impact the supply of the raw sugar cane (and the price) to the global market is a strong strategy. Examples include the adverse weather conditions from India to Brazil between 2009-2011 delivering lower than expected supplies.
How To Start Sugar Trading
There is no sugar trading manual, specific economics or strategies that are guaranteed. However, getting the basics right is essential. Below we outline a step-by-step guide for all investors to start their sugar trading journey.
Choose A Sugar Asset To Trade
The most common way to trade sugar is via futures contracts, though this does not mean it is the only way to access the market.
Your choice may depend on whether you want to own the underlying asset or not. An accessible way to be involved in the sugar trading industry is to invest in the shares of the biggest sugar trading companies, for example, in Brazil, the USA, Thailand or the Philippines. Recognised companies include Wilmar Sugar Americas Trading Pte Ltd, Utility Sugar Trading Limited, Glencore Sugar Trading Ltd and United Sugar Trading Curacao, Gautam Sugar Trading Company (in Kolhapur) and Sugar International Trading Limited.
Choose A Broker
Once you have decided on the trading strategy and favoured sugar trading instrument, it is time to sign up for a broker or exchange that will facilitate your trades.
There are many online brokers available in the sugar trading market, some of which will specialise in certain financial instruments. IG focuses on leveraged CFDs and spread bets of commodities. Other popular brokers include AvaTrade, XTB and XM.
The most important aspect of choosing a broker is its safety and reliability. Spend time researching the firm on peer-to-peer review sites. Regulation from a reputable financial body is vital to offer personal capital protection.
Other important aspects of a sugar commodity trading broker include whether they offer a competitive fee structure and commission rates, leverage opportunities, account specifications, platform options and deposit and withdrawal methods.
Some brokers may offer financial incentives for new customers in the form of a no deposit bonus. It would likely be beneficial to find a broker that offers a mobile application or a trading platform compatible with portable devices. This will ensure you can stay up to date with trading commodities while on the move and be reactive to significant price swings.
Open A Trading Account
Once you have established a safe and transparent broker suited to your strategy needs, it is time to sign up for an account. Brokerage firms will have different requirements to open a live account. These will include minimum deposit requirements, identity verification needs or account-specific criteria. Before depositing funds, we would always recommend utilising demo accounts first.
Construct A Risk Management Strategy
A risk management strategy should be used throughout sugar trading investments, regardless of whether leverage is being utilised. All trading involves risk, even with a sturdy business plan in place. Alerts and stops can be applied if the market moves against your trade, which can protect against needless losses.
Take A Position
Trading decisions should be based on prior market analysis and your selected strategy. You can speculate on rising or falling prices by buying if you think the price will rise and selling if you think it will fall.
It is important to monitor your position using trading charts and graphs. Be aware of macro-economic influences that could result in a significant shift in sugar trading prices. Stay on top of the latest news, forecast information and related business intelligence.
Close
Depending on the instrument used, you may be able to close a trade when desired and capitalise on the market movements. You can also apply appropriate limits or stops to close a trade once specific criteria are met.
Trading Hours
Sugar trading hours will depend on the market and asset being traded. Commodity markets are typically open 24-hours a day, similar to the USD forex trading hours, with most closed from Friday evening until Sunday.
White sugar trading hours are set by the Intercontinental Exchange (ICE). Hours may shift due to UK and US daylight saving hours or be impacted by public holidays. Many trading brokers and exchanges will publish updated market hours within their member portals.
Fair Trading
Fair trading is an important consideration when sugar trading. Fairtrade is an agreement between institutions designed to help producers of the commodity achieve better prices. 80% of the world’s sugar cane is grown in developing countries. In a market as vast as the global sugar trade, it is no shock that these producers have almost no influence on key trade choices.
Causing additional interference to producers in the developing world is the European Union’s decision to remove production quotas on sugar production in 2017.
Previously, farmers in the Caribbean, African and Pacific countries sold sugar cane to the EU market using quotas and received payments synthetically higher than the global market price. This stabilised the price of the commodity and reduced volatility in the market for investors.
Governmental contributions and import tariffs are also influencing prices when it comes to sugar trading. For example, in the US, import tariffs are designed to protect the jobs of domestic farmers, so prices for US consumers have been raised. Traders should monitor any new regulations or tariffs as these can dramatically influence the price of the commodity.
This may also lead to consumers considering sweeteners or other alternatives to the household staple.
Final Word On Sugar Trading
The sugar trading industry presents some exciting opportunities due to the market’s volatility. Positions can be taken via spot trades and the purchase of futures contracts for longer-term returns or through CFDs and options in the short term.
The wide range of available instruments for speculators to explore provides something for every type of sugar trader, new or experienced. Sugar is expected to offer attractive trading opportunities in the coming year, so follow our guide above to get involved.
FAQs
Why Is The Sugar Trading Market So Volatile?
The price of sugar is exposed to many global and national influences. These include government tariffs, costs of production, climate change and geopolitical instability. These demand and supply factors all influence movement within the market.
What Trading Instruments Can Be Used With Sugar?
Sugar trading instruments include futures, options, CFDs, stocks and ETFs. These all create a unique trading approach. Sugar is most commonly traded via a futures contract under the name sugar no. 11. This is considered the benchmark for trading raw sugar around the world.
What Are The Best Brokers For Sugar Trading?
The best brokers for sugar trading will depend on your instrument and strategy requirements. Regardless, they should offer a transparent fee structure, stable trading platform, demo account, mobile app and regulation from a reputable financial body.
Can I Purchase Shares In The Sugar Trading Industry?
Yes, there are many sugar trading companies across the globe. These provide exciting opportunities to invest, as share prices will fluctuate respective to sugar prices. Companies to review include Sugar River Trading Co, Agrana Studen Sugar Trading GMBH, Sugar Industry Trading Co. Ltd (SITCO), Sugar Mill Trading Co Harbour Island, United Sugar Trading Company N.V. and British Sugar PLC in the UK.
Where Are The Sugar Trading Companies Located?
Sugar trading companies can be found in locations across the globe, including Malaysia, Indonesia, India, Dubai, NZ, UAE, Singapore and more.