The Handbook of Commodity Investing

CHAPTER 39

Fundamental Analysis of the World Sugar Market

Rohit Savant

Commodity Analyst

CPM Group

Sugar is one of the most widely consumed commodities in the world. Its use as a sweetener has existed for centuries. Today, with the world looking for renewable sources of energy such as ethanol, sugar's importance is growing in the energy complex. Sugar is widely used as feedstock for ethanol.

The market for sugar is complicated by several trade arrangements between various countries. Several governments, especially in developed countries, subsidize their domestic sugar production. Both trade agreements and subsidies greatly reduce the efficiency of the sugar market. While several trade distortions such as tariffs and quotas are being removed, there still are several that exist.

In the soft commodities complex, which includes cocoa, coffee, cotton, and orange juice, sugar is the largest market in terms of open interest on the Intercontinental Exchange (ICE). It is a market not covered and researched as much as other commodities such as gold, copper, or oil. The following chapter introduces the reader to an approach on forecasting sugar prices and analyzing the sugar market. The chapter discusses various factors and the degree to which they influence price.

PRICE FORECASTING

While conducting fundamental analysis to forecast sugar prices, the most important metric to forecast is carryover, or what is commonly known as ending stock. Calculating carryover captures various aspects of ...