The Learn About Futures Insider for October 27, 2011: Sugar

This sweet commodity has been the underlying product for a futures contract in New York for nearly a century. Part of the softs sector (which traded on the Coffee, Sugar and Cocoa Exchange), the Sugar #11 futures contract to which the following specifications will refer now finds its home on ICE Futures U.S.


Contract Size:112,000 pounds

Price Quote & Tick Size: Cents and hundredths of a cent per pound; minimum fluctuation is 1/100th ($.0001) of a cent per pound or $11.20 per contract.

Contract Months: March, May, July and October

Trading Specs: Futures trade electronically on the InterContinental Exchange 3:30 am – 2:00 pm ET. Options trade on the floor 8:10 am – 1:30 pm ET.

Daily Price Limit: Currently none, but you should always consult the exchange.

Trading Symbols: SB

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Past performance is not indicative of future results.
***chart courtesy of Gecko Software

Sugar Facts

Sucrose, lactose, and fructose are a trio of substances from which we taste the flavor “sweet”. Sugar itself is a crystalline substance derived primarily from sugar cane and sugar beets. Most of us are likely more familiar with sugar cane and its history as it shaped the Caribbean through plantations which ran on slave labor to produce their bounty of molasses and rum.

Sugar cane has been produced for centuries and is now mostly grown in warm climates around the world.

The following chart shows recent world production:
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***data courtesy USDA

Of course, many countries with cooler climates still produce sugar beets which, in the Northern Hemisphere, have a season that culminates in a harvest normally beginning in September. Sugar beets may be stored after harvest, but like cane they can lose some of their sugar content in this manner.


Recent sugar beet production is shown in the following chart:
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***data courtesy USDA

Overall production for sugar over the last decade is illustrated in this chart:
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***data courtesy USDA

The following map shows rough distribution for beets and cane production:

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Sugar cane is crushed for collecting and filtering juice. Following treatment to remove impurities and boiling, dredging, and skimming, sugar liquid begins to produce crystals which are removed from syrup using a centrifuge. Raw sugar crystals may be refined further or shipped to another location for additional processing.

Beets are washed and sliced and sugar is extracted with hot water. Treatment, filtration, and evaporation lead to a centrifuge as well.

The rough share of commercial world sugar production is 70% cane sugar to 30% beet sugar.


Recent world sugar imports and exports are shown in the charts below:
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***data courtesy USDA
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***data courtesy USDA

Price highlights for this market include:

* Sugar prices in the early 20th century fluctuated wildly, influenced by politics, supply, and demand. In 1960, preferential prices were set for purchases from Cuba at around 5 cents per pound. This changed with the political landscape of the time, and speculation about embargoes helped fuel price volatility. Over the next few years, a temporary sugar shortage caused prices to spike above 12 cents a pound, but by 1964 they had dropped back towards 4 cents a pound.
* Sugar was reportedly trading around 2-3 cents a pound by 1970. In 1974, two major sugar producers - Poland and the Philippines - suspended sugar exports due to poor harvests and prices soared to 66 cents per pound. This led to widespread consumer boycotts in the US. Higher production helped precipitate a price retreat through 1975. By the end of the 1970s, prices would be back below 10 cents a pound.
* Forecasts for tighter world supplies in 1980 caused another price spike, this time above 45 cents per pound. 1980 also brought the news from major soda manufacturers like Coca-cola that they were switching to corn syrup to sweeten their beverages. The decision was based on long-term price forecasts, and at the time, newspapers reported that some analysts felt this would not impact sugar prices significantly. By the end of 1981, sugar was trading below 15 cents a pound. In 1985, it had dipped below 5 cents per pound.
* Sugar prices spiked above 15 cents per pound in, partially boosted by news that the US would maintain price supports.
* Suspected crop damage in Cuba and Thailand also boosted prices towards 15 cents per pound in 1994/95.
* Plentiful supplies brought sugar prices below 10 cents a pound by the late 1990s.
* Prices spiked back towards 20 cents a pound in 2005/6 amid price volatility following the EU announcement to cut sugar price guarantees.
* Prices remained volatile, dipping towards 10 cents a pound in 2007/08, spiking up towards 30 cents a pound in 2009/10, back below 15 cents a pound in 2010, and above 35 cents a pound in 2011. Brazilian crop changes, sugar ethanol production, sugar beet crop damage, and various weather events helped fuel the volatility.

Key terms for this market include:

Crush - normally used to describe the amount of sugarcane being processed, often expressed in metric tons

Sugar refining - a process for purifying raw sugar

Key Uses

Food - Sugar was once a luxury food product, but it is now a part of cuisines across the globe. From candies to desserts or for preserving food, sugar can be found in a wide variety of food products. Byproducts of beet sugar processing may also be used in feedstock.

Fuel - Sugar can also be converted into ethanol, making it a critical link to fuel or energy resources. By fermenting sugar from cane crops into ethyl alcohol, sugar went from being mainly a food commodity to a choice for alternative fuels. Brazil is widely noted as a leader in sugar ethanol production and the bio-fuel program that goes with it.

Key Concerns

International Trade Issues – Price supports and trade subsidies and restrictions and any changes that may be implemented could have an effect on sugar prices. There appears to be no end to issues with imports and exports of sugar including many countries that subsidize domestic production and maintain high import tariffs. Trading blocs and other groups of sugar producing nations will often argue these issues and more in venues such as the World Trade Organization and any statements or news from these organizations and countries is worth watching. Especially noteworthy for many traders is whether or not the US will maintain or adjust its tariff on sugar ethanol.

Health – Studies or announcements which link sugar to diabetes or any other disease are also worthy of note. Alternately, products like high fructose corn syrup – the sweetener of choice when sugar prices were considered to be too high for beverage and food producers – receiving unfavorable reports may swing the pendulum the other way.

Environmental Impact – Sugar cane requires nearly four times the amount of water as sugar beets do to process. Corn may require more input versus output when regarding ethanol fuel production. These issues and more will be important to take note of environmental concerns make headlines.

Weather – Like most agricultural products, sugar is susceptible to weather concerns regarding rainfall and temperature. Sugar beets are particularly at risk of frost since they are grown in cooler climates than cane and are rendered rather useless if hit by a cold snap.

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