In our guide to trading sugar, we will go over how to start trading this commodity and provide a list of regulated commodity brokers.
Sugarcane is produced in more than 130 countries and almost 70% of it is produced in its country of origin. The sugar market is constantly growing with an array of demand and supply impacts–an attractive proposition for investors and traders alike.
The global consumption of sugar was almost 171.69 million metric tons in 2020 and is projected to grow to 178.84 million metric tons in the next few years. Sugar futures are a prospective asset in world economics, let’s learn the basics of sugar trading and how to start investing in the stock market.
Table of Contents
How To Start Sugar Trading
There is no specific trading manual that guarantees returns. A process of trial and error and an in-depth analysis can maximize profits. We have outlined a basic step-by-step guide to start your sugar trading journey.
1. Choose A Sugar Trading Asset
Sugar futures are the most common way to trade in the market although they are not the only options. The trading asset will depend upon whether you want to own the underlying asset.
There are numerous sugar trading options such as sugar futures, CFDs, sugar options, shares and ETFs that have their assets and liabilities. An accessible way to be involved in the sugar trading company is to invest in shares and subsequently branch out into sugar futures.
2. Find A Commodity Broker
To facilitate your trades successfully, find a commodities broker. You will need a brokerage – the online storefront where you purchase commodities, stocks, futures, exchange-traded funds (ETFs), and other investments.
When you’re choosing a broker, it is imperative to find one that is trustworthy and reliable. Spend time researching the brokerage firm or check out our list of the best commodity trading platforms.
For a sugar commodity, review other aspects like whether they offer a competitive fee structure, leverage opportunities, account specifications, and deposit and withdrawal methods.
3. Open A Brokerage Account
After you find a reliable broker, it is time to sign up for a brokerage account. Opening a brokerage account does not mean you start trading, it just gives you the option to do so once you’re ready.
Brokerage firms have different minimum deposit requirements before you can go ahead. These will include identity verification and brokerage fees that will vary depending on the firm.
4. Set a Trading Budget
A trading budget allows you to exercise your strategy needs, without facing extreme losses. Even if you’re great at trading, you should not put more than 10% of your portfolio in one trade.
- Invest only the amount of money you can afford to lose
- If you do not have a healthy emergency fund, ratchet down your investments to less than 10% in one stock
- Practice with a paper trading account by analyzing a stock for three to five months
- Construct a risk management strategy to protect against needless losses
Make sure to stay on top of the latest news and forecast information to monitor your position and speculate on sugar commodities.
Where to trade Sugar?
To start trading sugar, you should pick a regulated broker that offers sugar trading. We list the best brokers for sugar trading below:
- Plus500 – Top Pick for CFD Sugar Trading
- Interactive Brokers – Best Sugar Trading Platform for Market Access
- eToro – Copy Sugar Trading Broker
- Pepperstone – Low Spread Sugar Trading Broker
How Can You Trade Sugar?
There are various ways to get started with sugar trading such as sugar futures, CFD options, shares, and ETFs. Let’s discuss each of them in detail below.
Sugar Futures
A futures contract is an agreement between two parties to buy or sell a fixed amount of a commodity at a predetermined price on a fixed date. Futures contracts allow traders flexibility in assuming the price of a commodity without having to take ownership of the commodity itself.
Regarding sugar futures, there are two types of sugar available to trade: raw sugar and white sugar. Sugar futures are a great way to start with sugar trading as traders do not need to pay the whole amount upfront or own underlying assets. Futures exchanges are done on the Intercontinental Exchange (ICE).
The size of the contracts varies depending on the type of sugar variable. The size of one contract of raw sugar represents 112,000 lbs of raw cane sugar and they are quoted in USX per cent. On the other hand, the size of a white sugar future contract is 50 metric tons and hence, is priced at USD per metric ton.
CFDs
Another speculation strategy that is popular among investors is CFDs. CFDs, like futures contracts, allow traders to leverage their underlying assets and attempt profits even if the prices rise or fall.
Traders get the opportunity to get exposed to the full contract value by only depositing a small margin. The advantage of CFDs for traders is that they can have exposure to sugar prices without having to purchase shares, futures, or ETFs.
CFDs are a great alternative to sugar futures if you’re starting out with sugar trading.
Sugar Options On Futures
Sugar trading options contracts are available via NYSE (Euronext) and Tokyo Grain Exchange (TGE). Sugar Options are another derivative element that employs leverage to trade in commodities.
Traders can use options through two strategies: calls and pulls. Depending on the price movement speculation, traders can avail of either opportunity. Traders who believe that the price of sugar can fall can purchase sugar options in the future.
Sugar options offer many advantages over futures such as leverage and the ability to leverage potential losses. Options have a strike price which is the price above which the option finishes in the money.
To purchase contracts in options, buyers need to pay a premium price. An option bet succeeds only if the sugar futures rise above the strike price. The futures should be greater than the amount paid for the contract. Options traders must be right about the size and timing of the move in sugar futures to profit from their trades.
Potential investors always have the option of purchasing stocks from top trading companies worldwide. Since there are no pure-play global sugar trading companies, retail traders will need to take a different approach to sugar stocks.
These traders can invest in companies involved in sugar exporting or other users that can benefit them in sugar trading. The prices of the commodity itself heavily influence share prices for these companies.
ETFs
Sugar exchange-traded funds (ETFs) trade on exchanges the same way shares do in the stock market.
Exchange-traded notes track an underlying index of securities and trade on the stock exchange like shares. Note that ETNs have lower index tracking errors and higher liquidity risk.
Why Is Sugar Important In Trading?
Sugar is a staple in many diets once reserved for the wealthy. The first chemically refined sugar appeared in the Gupta dynasty about 2,500 years ago. Since then, sugar was regarded as a luxury item reserved for the ruling classes.
Most people could not afford sugar, which was rarely an ingredient in their meals. After the rise of beet sugar in Prussia, sugar became more widely available. Trading sugar is a feasible choice for investors because of its size and volatile nature. Whether the market is rising or falling, there is an opportunity to profit through sugar futures.
Sugar is more widely produced as it is not restricted to the food industry. Sugar production also creates other by-products like molasses and beet pulp which branch out to many more industries. Due to its expansive nature, trading sugar futures is a rising trend in the stock market.
What Is Sugar Trading?
Sugar is an important commodity within the global trading environment. Sugar trading is speculation on the price of the commodity. It can derive great returns due to its size and volatility.
Since the sugar market is extremely diverse, there are various opportunities for investors to diversify their portfolios or secure selling and purchase prices. The price of sugar is only determined within a few market exchanges – namely Intercontinental Exchange (ICE), Kansai Commodities Exchange (KEX), and National Commodities and Derivatives Exchange (NCDEX).
What Affects The Price Of Sugar?
The price of sugar is determined by global supply and demand. Sugar cane is cultivated in countries with warmer climates like India, Brazil, Thailand, China, and Mexico. When trading commodities, you should gain insight into the locations where the production takes place.
Since a large sugar production occurs in these countries, events in these countries can greatly affect the commodity’s price. Listed below are some factors that affect the price of sugar.
Weather
Regarding the production of soft commodities, weather plays a significant role. Climate change patterns have an impact on the sugar supply. A warm climate can be “too warm” for sugar and can lead to a decrease in sugar supply and an increase in prices. For example, a drought in Brazil damaged sugar cane which affected the pace of sugar production.
Along with warm weather, adverse weather conditions are not ideal too. Wet conditions hinder sugar production and trigger an increase in prices too. On the other hand, perfect weather conditions produce bumper crops which leads to a gradual decrease in prices. The weather conditions of the main countries should be intricately analyzed to predict the prices of sugar trading.
For example, the monsoon season in India is particularly significant for determining sugar prices. The monsoon season is the main source of irrigation for the crops produced in the country. This means that if there is less rainfall than normal and can negatively affect the growth of sugarcane and its successive production. Reduced crop production can lead to an upward movement in prices.
Health Concerns
Sugar consumption is linked to serious illnesses like obesity, diabetes, and heart disease. In developed countries, people are becoming conscious of eating too much sugar which leads to a decrease in sugar consumption.
Consuming too much sugar has negative health effects–forcing governing bodies to increase taxes and restrictions against the products being implemented. For example, in 2018, the UK government implemented a levy on soft drink producers for using more than recommended sugar proportions.
This may result in a decline in sugar production and a fall in sugar prices. Malfunctions in the production cycle can be a driving factor for sugar prices.
Crude Oil Prices
The prices of sugar and oil are coincidently parallel to each other. One factor that inadvertently influences the price of sugar is crude oil as sugar is a primary ingredient to produce ethanol.
Ethanol is a renewable fuel made from corn or other materials. More than 90% of gasoline in the US contains ethanol which affects sugar prices. When oil prices are elevated, some refiners use ethanol in their gasoline blends to save money. A decrease in gasoline prices means a decrease in the price of ethanol.
Since ethanol is derived from sugar, there will be an oversupply of raw cane sugar, leading to a decrease in sugar prices. Consequently, an increase in demand for ethanol leads to an increase in sugar prices.
Brazilian Real Value
Brazil is one of the top producers and exporters of sugarcane. In 2020, the country produced more than 40% of the world’s total–amounting to 1.87 billion tonnes. When sugarcane was produced in the country almost 500 years ago, it was equated with the value of gold.
Fluctuations in its currency–known as real can drastically affect sugar prices. In fact, Brazel is not only the largest producer of sugar but also the second-largest producer of ethanol. Brazilian ethanol is produced by using sugar which affects the demand for sugar supply.
When the currency is weak, the country has the incentive to produce sugar for countries with stronger currencies. Subsequently, when the Brazilian real is strong, farmers are more inclined to sell sugar to ethanol producers.
Conclusion
The sugar trading market offers endless opportunities to investors due to its wide range. With some practice and an extensive stock portfolio, sugar commodities are bound to be a great trading asset.
Sugar trading allows you to explore numerous financial instruments to choose one that best fits your needs.
