Commodity Investing: Maximizing Returns through Fundamental Analysis

CHAPTER 17

Sugar

Sugar is made by plants to store energy that they don't need immediately, similar to the way animals store fat. All plants produce sugar using photosynthesis, but only sugarcane and sugar beets store enough for commercial production. Once processed, the end product produced from both crops is nearly identical. Sugarcane stores the sugar in its stalk, whereas sugar beets store the sugar in its white root. Sugarcane is a perennial grass that looks like bamboo and is grown in tropical and semitropical climates. Sugar beets are an annual crop grown in the more temperate climates of the Northern Hemisphere. Sugar is a pure carbohydrate that supplies energy to the body. It plays an important role in the world's food supply. Most people think of sugar as only a sweetener, but it can also be used for many other cooking and baking functions—for example, as a bulking agent or a preservative.

Sugar has a market structure that is completely different from that of the other commodities discussed in this book. The world market for sugar as well as the corresponding futures contract does not bear any relationship to the true global supply and demand conditions. This is because nearly every sugar-producing country in the world intervenes in its production, consumption, and trade of sugar. Only approximately 20 percent of global sugar production is traded on the open market.¹ The rest is consumed or stored in the country in which it is produced. This makes it extremely hard to ...