A Sugar Trading Guide: What is Sugar and How to Trade it

Sugar (SB) is widely known as a food and beverage sweetener, but it’s also a major agricultural soft commodity in the global market. The demand for sugar is closely tied to population growth, income levels, and long-term political and population trends, making it one of the most widely traded assets worldwide. Here’s what you need to know about Sugar trading:

TL;DR

• Sugar is a popular agricultural commodity
• Sugar includes glucose, fructose, and sucrose.
• Sugar has been used for over 10,000 years, originating from India and Southeast Asia.
• As of 2024, India is considered the top Sugar-Producing Country.
• Sugar can be traded with CFDs, Future contracts, associated sugar production companies, ETFs, and Options.
• There are many factors influencing the price of Sugar, including weather conditions, trends and more.

Sugar Facts

Before we explore the intricacies of sugar, here are some interesting facts about it:

• Sugar is found in all plants.
• Sugar does not spoil, as it is toxic to most microbes.
• In the U.S. alone, sugar is grown and/or refined in 17 states.
• Sugar has healing properties due to its moisture-absorbing abilities, which prevent bacterial growth in wounds. This use has been documented since 1700 BCE and is supported by recent research.
• Sugar is naturally white after being extracted from sugar beet or sugar cane plants and washed to remove molasses and other plant materials.

The History of Sugar Trading

• 8000 B.C.: Sugar trading began in Papua New Guinea.
• 600 CE: Sugar cultivation and trade expanded into Southeast Asia and India.
• 1455-1480 CE: Madeira, Portugal, experienced significant growth in its European sugar refining industry.
• 1501 CE: Sugar crossed the Atlantic, establishing itself in the New World and the West Indies.
• 19th Century: David Lee Child introduced America's first sugar beet factory.

Sugar Top-Producing Countries

As of 2024, India holds the title of the world's largest sugar producer. The top ten sugar-producing nations, which also include Brazil, Thailand, and China, collectively contribute 70% of the world's sugar supply.

The leading sugar producers benefit from favourable climate, agriculture, and advanced techniques, driving local demand and economic development. The interplay of sugarcane cultivation, technology, and trade shapes the modern sugar industry, meeting increasing demand and contributing to economies worldwide.

How to Trade Sugar

Sugar Contracts for Differences (CFDs)

Sugar CFDs are derivative contracts between two parties, typically a buyer and a seller or a trader and a CFD provider. They allow them to trade the difference in the price of sugar from initiating the contract until its closure without physically owning it.

This type of Sugar trading enables traders to potentially profit from rising and falling sugar prices, depending on their position and the market's direction. Additionally, sugar CFDs are leveraged, meaning both gains and losses can be magnified.

To learn more about CFD trading, check out our video and article “What Is CFD Trading?”

Sugar Futures

A futures contract is an agreement between two parties to trade an underlying asset at a set price on a specific date in the future.

Futures can be used to protect against future price changes but are also commonly used for trading. Traders can speculate on future price movements without owning the underlying asset.

Two types of sugar futures contracts are available for trading: raw sugar and white sugar. Raw sugar is made by processing sugar cane juice. White sugar can be white beet sugar, cane crystal sugar, or heavily processed raw sugar.

Types of Sugar Futures:

• Sugar No. 11 Futures:
  Sugar trades in contracts are commonly known as “Sugar No. 11.” This contract serves as the global standard for raw sugar trading. It establishes the pricing for the physical delivery of raw cane sugar, which is provided free-on-board the receiver's vessel to a port located within the sugar's country of origin. It is most actively traded at the ICE exchange.
  
  The New York Mercantile Exchange (NYMEX), a division of the Chicago Mercantile Exchange (CME), and the Intercontinental Exchange (ICE) provide a contractual agreement for sugar. This contract is based on the settlement of 112,000 pounds of world sugar #11, recognised as the global standard for raw sugar.
• Sugar No. 16 Futures:
  The Sugar No. 16 contract is tailored to meet the hedging needs of U.S. sugar producers, end users, and merchants. This contract facilitates the pricing and physical delivery of raw cane sugar, whether U.S.-grown or of foreign origin, with duty paid by the deliverer at one of five U.S. refinery ports, as designated by the receiver.
• White Sugar Futures:
  The White Sugar futures contract serves as the global standard for determining the valuation of physical white sugar. Participants in the international sugar trade, including sugar millers, refiners, manufacturers (end-users), managed funds, and both institutional and short-term investors, actively engage in it.

Sugar Stocks

Sugar sector shares are shares of companies involved in the production and sale of sugar and related products and services, including:

1. Sugar cane and sugar beet farmers which cultivate and harvest sugar cane or beet.
2. Sugar refiners which process raw sugar into refined sugar products.
3. Sugar product manufacturers produce sugar-based products like confectioneries, sweetened beverages, and other food items, like chocolate-producing companies like Nestle (NESN.VX) or Mondelez (MDLZ).
4. Sugar distributors are involved in the distribution and sale of sugar products to retailers and consumers.

Sugar ETFs

Exchange-traded funds (ETFs) are versatile investment baskets that include various assets such as stocks, bonds, and commodities, providing portfolio diversification and tradable on stock exchanges similar to stocks. There are two ETFs that trade in sugar #11 futures:


1. SGG – iPath Bloomberg Sugar Subindex Total Return ETN.
2. CANE – Teucrium Sugar Fund.

Sugar Options

Sugar options are financial derivatives that give the holder the right, but not the obligation, to buy or sell a specific amount of sugar at a predetermined price (the strike price) within a specified time period. Investors and traders commonly use these options to hedge against price fluctuations in the sugar market or to speculate on future price movements.

Trading Sugar CFDs with Plus500

Plus500 allows you to trade sugar CFDs with the following steps if you feel it's the right decision for you:

• Open a trading account.
• Log into the platform using either the web app or the mobile app.
• Search for “sugar” in the search bar, or navigate to the commodity category on the left side of the screen and select it.

As an alternative, you can open a free and unlimited Demo Account without risking any of your capital to practise trading sugar CFDs under real market conditions. You can continue this practice until you are confident enough to apply your skills in real mode.

What Influences the Price of Sugar?

Several factors can affect the price of Sugar, including:

• Global Sugar Stocks (Inventories): Low sugar stocks indicate strong demand, weak supply, or both, causing sugar prices to rise. Long supply cycles can also significantly impact sugar prices.
• Inflation of the US Dollar: Sugar derivatives are priced in US dollars, so a decrease in the dollar’s value makes sugar cheaper for foreign buyers, increasing demand and prices.
• Oil Prices: Sugar competes with ethanol, an alternative fuel produced from sugar cane. Lower gasoline prices decrease ethanol demand, leading to an oversupply of raw sugar and lower sugar prices.
• Weather Conditions: Sugar production is sensitive to weather. Droughts or excessive wet conditions in key sugar-producing regions like Brazil can disrupt production and affect prices.
• Regulations: Government policies, such as subsidies and import tariffs, influence sugar markets. For example, US import tariffs protect domestic farmers but raise consumer prices, leading to a search for alternative sweeteners.
• Consumption Trends: As global populations grow so does sugar consumption. However, rising awareness of sugar's health impacts, like obesity and diabetes, may slow demand growth in mature markets.

Conclusion

Understanding the complexities of sugar trading, including historical trends, current leading producers, and various trading methods like CFDs and futures, is essential for navigating this highly influential and widely traded agricultural commodity.

Sugar Trading FAQs:

What are the main ways to trade sugar?

Sugar can be traded through CFDs, futures contracts, associated sugar production company stocks, ETFs (Exchange-Traded Funds), and options.

What factors influence the price of sugar?

Several factors affect sugar prices, including sugar stocks, US dollar inflation, oil prices, weather conditions, global demand, government regulations, production changes in top countries, consumption trends, and political factors.

Who are the top sugar-producing countries?

India, Brazil, Thailand, China, the US, Russia, Mexico, France, Pakistan, and Australia are the top sugar-producing countries in 2024.

How is Sugar produced?

Sugar is produced by extracting juice from sugar cane or sugar beet plants. The juice is then processed to extract the sugar, which is then crystallized, dried, and refined to produce the sugar we use.