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How to buy sugar stocks
Sweeten your portfolio with this commodity through 4 strategies.
4 ways to buy sugar stocks
- Sugar ETFs
- Stocks in sugar companies
- Sugar futures
- Sugar options
Worth considering are exchange-traded funds — or ETFs in Ireland. 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 minimise risk by diversifying while also taking advantage of the performance and general popularity of a particular sector.
Stocks in 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. You can buy stocks from Irish sugar-producing companies like Greencore (GNC) on the London Stock Exchange.
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. Because futures contracts are standardised, one Sugar No. 11 contract always represents 112,000 pounds of raw centrifugal cane sugar. 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.
Futures can be extremely volatile, making them a riskier investment than other options. Success comes down to hitting timing and price movement just right. You can get started through a brokerage account that allows futures trading — only a few of the major brokerage accounts in Ireland enable you to trade futures, as well as some forex trading accounts. Some platforms to consider in Ireland include Degiro and Interactive Brokers.
While the Euronext Dublin does not offer sugar futures, various other 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 (ICE).
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 from Ireland.
Compare share trading platforms to buy sugar stocks
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What are Ireland’s sugar stocks?
Sugar stocks are few to none on the Euronext Dublin. If you’re looking to invest in overseas exchanges, 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)
If you’re looking to invest in individual sugar companies, you can explore sugar producer and candy maker stocks such as:
- Sugar producers
- Imperial Sugar Company (IPSU)
- Alexander & Baldwin (ALEX)
- Candy makers
- Hershey (HSY)
- Tootsie Roll Industries (TR)
Why invest in sugar stocks?
- Sugar is sometimes considered a potential hedge against inflation
- The sugar market holds opportunities for speculative investors
- Investors sometimes use sugar stocks as a means to diversify their overall portfolios
Investing in this volatile commodity comes with the possibility of substantial gains — and substantial losses. Keep an eye out for these risks when investing in sugar:
- Volatile prices. Commodity prices can be volatile and disproportionately affect the operating performance of companies in the sugar industry. This could lead to huge swings in the price of sugar companies in a short span of time.
- Correlation with the dollar. The strengthening of the US dollar might result in a long-term decline in sugar prices and affect the performance of companies in the sugar industry.
- Government subsidies. Government subsidy programs might disproportionately favour some sugar companies over others, and distort the sugar market, resulting in sharp drawdowns in the price of sugar stocks.
How do I pick the best sugar stock?
Choosing the best sugar stock is no easy feat, especially with the number of factors to consider. First, start by determining the type of stocks you would consider. Are you just looking at sugar producers or are you looking at consumer foods companies that produce sugar-based products? Which markets are you looking at?
From then, identify the companies with the best financial metrics and the best reasons for price appreciation. Some factors that you should compare across your companies of choice include the strength of the company’s balance sheet, the debt leverage as well as the growth in the company’s dividend over time. Most importantly, remember to account for any anticipated changes in policy or the economic stance of governments that might adversely affect your stocks.
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