How to Invest in Sugar April 2021 | Finder Canada

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How to invest in sugar

Sweeten your portfolio with this commodity through 4 strategies.

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Harvested from two main sources — sugarcane and sugar beets — sugar is produced in more than 130 countries, with more than 70% of the sugar produced consumed in its country of origin. That’s one heck of a sweet tooth. And one heck of a way to diversity your portfolio. Just watch for sticky risks — investing in commodities isn’t for the faint of financial heart. Beginners can look to ETFs and other less risky avenues of entry into sugar.

1. Buy sugar ETFs.

Worth considering are exchange-traded funds (ETFs). ETFs trade as shares on exchanges the same way that stocks do. But unlike stocks, they offer access to a variety of assets without needing to put all of your money into one or two companies.

ETFs allow investors to minimize risk by diversifying while also taking advantage of the performance and general popularity of a particular sector.

Popular ETFs that invest in Sugar No. 11, which is the benchmark in the raw sugar trade based on a futures contract for the physical delivery of raw cane sugar, include:

  • iPath Series B Bloomberg Sugar Subindex Total Return ETN (SGG)
  • Teucrium Sugar Fund (CANE)
  • iPath Pure Beta Sugar ETN (SGAR)

Pros

  • ETFs allow portfolio diversification and risk management.
  • Lower costs than open-ended mutual funds.

Cons

  • You relinquish some control over the split of assets.

2. Buy stocks of sugar companies.

Another option for getting sticky with sugar is purchasing stock in a company that sells or is involved in the production of this commodity. A few to keep in mind are:

  • Sugar producers
    • Imperial Sugar Company (IPSU)
    • Alexander & Baldwin (ALEX)
  • Candy makers
    • Hershey (HSY)
    • Tootsie Roll Industries (TR)

Pros

  • Choose from a range of stocks, and cash out when you want.
  • Simple, accessible and versatile access to the market.

Cons

  • On its own, puts all your eggs in one basket.

3. Buy sugar futures.

A common way to invest in physical sugar, futures contracts are legal agreements that allow you to buy or sell this commodity at a predetermined price at a specified time in the future. Contracts are negotiated at futures exchanges, which are like marketplaces between buyers and sellers, and you must trade on these contracts before they expire. Sugar producers and major sugar buyers often use futures contracts to lock in prices, but investors and speculators can also trade futures.

Various exchanges offer contracts on sugar, including the New York Mercantile Exchange — called NYMEX — which is part of the Chicago Mercantile Exchange, and the Intercontinental Exchange. You can get started through a brokerage account that allows futures trading — only a few of the major brokerage accounts enable you to trade futures, as well as some forex trading accounts.

Because futures contracts are standardized, one Sugar No. 11 contract always represents 112,000 pounds of raw centrifugal cane sugar.

Futures can be extremely volatile, making them a riskier investment than other options. Success comes down to hitting timing and price movement just right.

Pros

  • Standardized contracts eliminate concerns about a commodity’s underlying quality and quantity.
  • Investing is accessible through select brokerage accounts.

Cons

  • Futures are volatile — you can’t predict exactly how prices will fluctuate.
  • You must act on a futures contract before it expires. Otherwise, it’s worthless.

4. Buy sugar options on futures.

An options contract is an agreement between a buyer and seller that offers the option to buy or sell an asset at a later date and at an agreed price.

Because you can’t lose more than you paid for the option, excluding brokerage costs, one benefit is limited personal loss. So, if you’re wrong about the price of sugar, your loss is only what you paid for the option. Also, options are generally far less expensive than buying a futures contract outright.

The International Exchange — or ICE — offers an options contract on sugar futures. Check your futures brokerage’s options offerings to see if you can trade it.

Pros

  • Less risky than sugar futures.
  • Usually cheaper than futures.

Cons

  • You must act on options agreement before it expires.
  • If the option expires out of the money, it’s worthless.

Compare these providers for access to sugar ETFs and more

Name Product Available asset types Stock Fee Option Fee Account Fee ETF Transaction Cost Feature Table description
Questrade
Stocks, Bonds, Options, Mutual Funds, ETFs, GICs, International Equities, Precious Metals
$4.95-$9.95
$9.95 + $1 per contract
$0
Free
$0 account fee and free ETF transactions.
Opt for self-directed investing and save on fees or get a pre-built portfolio and take some of the guesswork out.
Interactive Brokers
Stocks, Bonds, Options, ETFs, Currencies, Futures
Min. $1.00, Max. 0.5% of trade value
$1.50 min. per order
$0 (if monthly commissions are greater than or equal to US$10.00)
Min. $1.00, Max. 0.5% of trade value
Extensive trading capabilities and global investment tracking.
Access market data 24 hours a day, six days a week and invest in global stocks, options, futures, currencies, bonds and funds from one single account.
Wealthsimple Trade
Stocks, ETFs
$0
N/A
$0
Free
Deposit and trade $100 and get a $25 bonus.
Pay no commissions when you trade Canadian stocks and ETFs with Wealthsimple Trade.
Qtrade Investor
Stocks, Bonds, Options, Mutual Funds, ETFs, GICs
$6.95 - $8.75
$6.95 - $8.75 + $1.25 per contract
$0 if conditions met, otherwise $25/quarter
$0 - $8.75
Trade 100 ETFs free of charge.
Qtrade Investor offers low trading commissions and an easy-to-use platform with access to powerful tools and a wide selection of investment options. Trade 100 ETFs free of charge and thousands more for $8.75 or lower.
Scotia iTRADE
Options, Mutual Funds, ETFs, GICs, International Equities
$4.99-$9.99
$9.99 + $1.25 contract ($4.99 + $1.25 contract if completed 150 trades or more a quarter)
$0
$9.99 ($4.99 if completed 150 trades or more a quarter)
Pay no annual account fees.
Buy, sell and trade ETFs, Equities, Options and more with competitive commissions.
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Compare up to 4 providers

What factors drive the price of sugar?

Investing in this volatile commodity comes with the possibility of substantial gains — and substantial losses. This is largely due to the number of factors that affect the price of sugar:

  • Global supply and demand. If farmers expect high demand, they plant more crops, likewise planting fewer crops when demand is weak. If global demand exceeds or falls short of sugar supplies, prices are hit accordingly.
  • Fluctuations in the Brazilian real. A weak real means greater supply on global markets and lower prices. That’s because when the real is weak, Brazilian farmers produce more sugar for export to countries with strong currencies and greater purchasing power. When the real is strong, they’re likely to sell in the local market.
  • Government subsidies. Government benefits and tariffs are used to protect local sugar producers. But they can distort the market, creating artificially high supply and depressing prices.
  • Weather. Wet weather can affect crops and reduce supply, driving up the cost.
  • Health concerns. Governments are under pressure to take action against high obesity rates, resulting in taxes or restrictions — ultimately leading to a decline in consumption and prices.
  • Ethanol demand. Sugar can be used to make ethanol, which competes with gasoline as a fuel source. A fall in oil prices can depress sugar demand for ethanol, while an increase in oil prices might mean higher demand for sugar-based ethanol.
Disclaimer: The value of any investment can go up or down depending on news, trends and market conditions. We are not investment advisers, so do your own due diligence to understand the risks before you invest.

Bottom line

You can invest in this sweet commodity through ETFs, stocks, futures and more. Each option comes with its own risks, not to mention unpredictable factors that affect most commodities — like weather and politics. Before you buy, compare your investing options for other commodities and trading platforms.

Frequently asked questions

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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