Sugar

Sugar trading is the buying and selling of sugar contracts such as futures, options and CFDs on commodity exchanges. Investors can also buy stocks in the top companies involved in the production and distribution of sugar and trade commodity ETFs. This manual will explore the factors that influence the price of sugar, major producing countries, its history and industry economics, plus trading hours. Use our list of the best sugar brokers to start trading:

Sugar Trading Basics

Sugar is one of the most widely traded commodities and is used in a variety of industries, including food and beverage production, pharmaceuticals, and biofuels.

Sugar trading is typically conducted on commodity exchanges through online brokers, such as the Intercontinental Exchange (ICE) and the New York Mercantile Exchange (NYMEX), where traders can buy and sell sugar futures. These contracts represent an agreement to buy or sell sugar at a specific price and date in the future.

The global sugar market is dynamic and volatile, due to the various factors that impact its prices, including the value of the Brazilian real and US dollar, government subsidies, and health trends.

History

Sugar has been a valued commodity for thousands of years. It is believed to have originated in the region now known as New Guinea at around 8,000 BCE. From there, it spread to Southeast Asia and India, where it was used for medicinal purposes and as a sweetener.

The sugar trade grew rapidly in the 18th and 19th centuries, as sugar consumption increased and new sources of sugar were discovered. Beet sugar, for example, became a major source of sugar in Europe. The sugar trade became a key driver of the global economy, with sugar plantations and refineries established in many countries around the world.

Today, the global sugar trade is said to be worth over $52 billion, with over 120 export and production companies in the world. Brazil is the largest producer of sugar, followed by India, Thailand, China and the United States.

The demand for sugar continues to grow, particularly in emerging economies, and the sugar trade remains an important part of the global economy.

Price Chart

Factors That Influence The Price Of Sugar

The global sugar trade is an important part of the global economy, and its price fluctuations can have significant impacts on both producers and consumers of sugar. Key factors that influence the price of sugar include:

• Supply and demand: The balance between supply and demand is one of the most important factors influencing the price of sugar. Population growth, per capita incomes, alternative sweeteners and global health concerns can all impact sugar demand.
• Weather conditions: Adverse weather conditions and natural disasters such as hurricanes and droughts can disrupt sugar production and lead to shortages, which can drive up prices.
• Government policies: This can include trade tariffs and subsidies. For example, if a government imposes a tariff on sugar imports, it can make imported sugar more expensive and increase the demand for domestic sugar.
• Currency fluctuations: If the currency of a major sugar producer, such as Brazil or Thailand, weakens relative to other currencies, this can make sugar exports more competitive and lead to increased demand and higher prices.
• Biofuel demand: Since sugar is one of the most efficient sources of biomass for biofuel production, it can be directly impacted by any fluctuations in demand.
• Global economic trends: If global economic growth is strong, it can lead to increased demand for sugar in a variety of industries which can drive up prices, and vice versa.

How To Trade Sugar

If you want to start trading sugar at online brokers, there are some key ways to invest depending on your trading preferences and risk appetite:

• Futures: Futures trading involves buying or selling sugar contracts that specify a pre-determined date and price. Futures trading allows investors to manage risks by locking in prices for future delivery. Traders can also use futures to speculate on price fluctuations.
• Options: Options trading allows investors to purchase the right to buy or sell sugar at a specified price and time. This type of trading can also be used to manage price risks and benefit from market movements. This flexibility comes at a cost, known as a premium.
• Stocks: Investing in companies involved in sugar production is challenging because most businesses are privately owned. As a result, individuals can indirectly speculate on sugar prices by trading stocks like Tootsie Roll Industries (makes confectionary), Cosan (bioethanol and sugar), and The Hershey Company (major chocolate producer).
• ETFs: Exchange-traded funds that track the price of sugar and other commodities can be bought and sold like stocks, providing investors with exposure to the sugar market without having to buy or sell actual sugar. Popular sugar ETFs include CANE (Teucrium Sugar Fund).
• CFDs: Contracts for difference allow traders to speculate on rising and falling sugar prices. The leveraged derivative is widely available at online brokers.

How To Choose Sugar Brokers

• Market access: Choose brokers that offers access to the sugar market you want to trade in, such as the ICE futures market or other commodity exchanges.
• Commission and fees: Trading sugar futures contracts typically involve paying commissions, spreads and other fees. Choose brokers with competitive fees to help minimise your trading costs. Pepperstone, for instance, offers CFDs on London sugar with a minimum spread of 1.2 and 1:10 leverage. The contract size per lot is 1 metric tonne.
• Market data and analysis: The broker’s platform should provide access to real-time sugar price quotes and charts, as well as market news and analysis. This information can help you make informed trading decisions. Popular trading platforms including MT5 and cTrader are widely offered by top brokers in the UK. For example, Admiral Markets offers access to sugar CFDs on their MT5 platform.
• Regulation: Check that the broker is licensed by a regulatory authority in the jurisdictions where they operate. In the UK, top sugar brokers are regulated by the Financial Conduct Authority (FCA). This ensures that the brokerage adheres to strict regulatory standards and safeguards your trading account and funds.

Strategies For Sugar Trading

When trading sugar on a stable platform, investors have access to a range of tools to facilitate different strategies.

For example, trend following allows you to identify trends in the sugar market using technical indicators such as moving averages or trend lines. These can indicate optimum conditions for when to enter and exit trades.

Mean reversion refers to identifying overbought and oversold conditions in the sugar market and trading against the prevailing trend. Technical indicators such as the relative strength index (RSI) and Bollinger bands are useful here.

If you want to implement a breakout trading strategy to identify when the price of sugar breaks out of a typical range, you can use support and resistance levels, as well as indicators for volumes and volatility.

Seasonal trading, on the other hand, might work well for those who aim to follow the seasonal patterns and trends of the sugar market. For example, the sugar market tends to be more active during the Brazilian harvest season.

Similarly, news trading involves investing based on market news and events that can affect the price of sugar, such as changes in weather conditions, government policies, or supply and demand factors. Traders may use fundamental analysis to identify news events and enter trades based on the anticipated market reaction.

Another popular strategy is spread trading, whereby you can trade the price differential between two related sugar products, such as raw sugar and refined sugar. Fundamental analysis can also be used to identify price disparities and enter trades based on the anticipated convergence of prices.

Advantages Of Sugar Trading

• Diversification: Sugar is a commodity that is not directly correlated with other assets, such as stocks and bonds, making it a source of diversification.
• Transparency: The sugar market is generally transparent, meaning that prices and market information are readily available. This transparency can make it easier for traders to make informed decisions about when to buy or sell.
• Liquidity: The sugar market is relatively liquid, meaning that there is a high volume of trading activity. This can make it easier for traders to buy and sell sugar contracts quickly and at competitive prices.
• Leverage: Sugar contracts are often traded with leverage, meaning that traders can control a large position with a relatively small amount of capital. Leverage can amplify potential profits, but it can also lead to large losses.
• Global demand: Sugar is a widely consumed commodity with a generally consistent demand in the global market. This demand can help support sugar prices.

Risks Of Sugar Trading

• Weather and supply factors: The price of sugar is affected by weather conditions, crop yields, and other supply factors that are outside of a trader’s control. These factors can create uncertainty and make it harder to run price forecasts.
• Health trends: Increasing concerns about obesity may limit demand and impact portfolios that contain sugar investments.
• Regulatory risk: Sugar trading is subject to various regulations, both in the country of origin and in the markets where it is traded. Any changes in local laws can have an impact on sugar prices and trading activity.
• Substitutes: Rising demand for sugar substitutes, including stevia and aspartame, may reduce demand for sugar and negatively impact prices.
• Volatility: The sugar market can be highly volatile, meaning that prices can fluctuate rapidly and unpredictably. Whilst volatility can create opportunities to profit, it can also increase your risk of losses.

Sugar Trading Hours

The trading hours for sugar vary depending on the exchange and the specific contract being traded. Below are the typical trading hours for the major sugar contracts:

• ICE Sugar No. 11: This is the world benchmark for raw sugar trading. Opening hours are 8:30 am to 6:30 pm GMT.
• ICE Sugar No. 16: This contract prices raw cane sugar in the United States. Trading hours are 2:00 pm to 6:00 pm GMT.
• ICE White Sugar Futures Europe: This is the global benchmark for the pricing of white sugar, and the trading hours are 8:45 am to 6:00 pm GMT.

These trading hours are subject to change, especially around holidays or during times of high volatility. Traders should check with their sugar brokers or the exchange for the most up-to-date trading hours and relevant market announcements.

Bottom Line On Sugar Trading

The sugar market is popular with traders looking to diversify their portfolios, hedge against inflation, or speculate on rising global economies. Sugar prices are influenced by various factors, including geopolitics, weather conditions, government subsidies and exchange rates.

Refer to our list of top UK brokers with sugar trading to get started.

FAQ

Article Sources

International Sugar Organisation (ISO)

Industrial sugar market report – Markets and Markets

Admiral Markets commodities contract specifications

Pepperstone commodities contract specifications