How to invest in sugar
Learn about how to invest in sugar, and the factors that drive prices.
Produced in the Indian subcontinent since ancient times, sugar is harvested from two main sources: sugarcane and sugar beets. More than 130 countries in the world produce sugar and over 70% of sugar produced is consumed in its country of origin. While most of us are happy enough eating sugar in sweets, baked treats and chocolate, some people choose to invest in it.
There are several ways to invest in sugar, but it’s not as easy as purchasing company shares and could involve quite complex investment types. Find out the ways to invest in sugar and the varying levels of risk.
Can you invest in sugar?
It’s possible to invest in sugar, but there aren’t many publicly traded sugar manufacturing companies that you can invest in, so the main ways to invest would be in either companies that manufacture with sugar, sugar ETFs or in more complex investment types, such as options and futures contracts.
UK companies that produce sugar
British Sugar (Associated British Foods)
One company that produces sugar is British Sugar, which is a subsidiary of Associated British Foods. It is the sole purchaser of all sugar beet grown in Britain. It is also a supplier of cannabis to GW Pharmaceuticals.
Buy Associated British Foods shares
Tate & Lyle
Tate & Lyle started out as a sugar refining business, but is now a food and beverage company. It creates ingredients using raw materials, such as corn and tapioca. It also produces sweeteners, including Splenda sucralose fructose and allulose; as well as gum and dietary fibres.
Invest in companies that manufacture with sugar
We all love a sweet treat – so it’s easy to choose companies whose products you personally enjoy, as well as based on detailed research into their financials.
Some companies include Mondelez and Nestle, both of which own well-known confectionary brands.
Mondelez
Mondelez is an American confectionary company. It owns Belvita, Oreo, Ritz, Milka, Toblerone, Cadbury and Green & Black’s, among many other billion-dollar companies. Sugar is a main ingredient in a lot of the products Mondelez creates. It’s taken steps in recent years to reduce the amount of sugar used in its products to limit the amount of calories consumed by customers.
Nestle
Nestle is a food and drink company that owns popular confectionary companies Smarties, KitKat, Rolo and Aero, among others. Nestle sources its sugarcane and sugar beet from more than 200 suppliers and 60 countries around the world. It is aiming to improve its sugar supply chain, and states that 98% of its sugar was assessed as deforestation-free in 2021.
Pros
- You can pick and choose a range of stocks and cash out when you want.
- A simple, accessible and versatile way to access the market.
Cons
- Can mean putting all your eggs in one basket.
Invest in sugar futures
Futures are a legal agreement to buy or sell something, at a predetermined price, at a specified time in the future. The contracts are negotiated at futures exchanges, which act as a marketplace between buyers and sellers.
There are various exchanges that offer contracts on sugar including The New York Mercantile Exchange (NYMEX), which is part of the Chicago Mercantile Exchange (CME), and the Intercontinental Exchange (ICE).
A benchmark in the raw sugar trade, and the most common sugar contract, is Sugar No. 11. A futures contract is for the physical delivery of raw cane sugar. Futures contracts are standardised, meaning one Sugar No.11 contract always represents 112,000 pounds of raw centrifugal cane sugar based on 96 degrees average polarisation.
Futures can be extremely volatile and are riskier than other investment options. You have to be right on the timing and price movement.
Pros
- All futures contracts are standardised, eliminating concerns about the quality and quantity of the underlying commodity.
Cons
- Futures can be extremely volatile and are riskier than other investment options. You have to be right on the timing and price movement.
- Futures expire on a certain date. If you fail to exercise them prior to expiry they become worthless.
Invest in sugar options
An options contract is an agreement between a buyer and seller that gives the purchaser of the option the right to buy or sell a particular asset at a later date at an agreed upon price.
There are two main benefits to options. Firstly, you are limiting your loss. You cannot lose more than you paid for the option, excluding brokerage costs. So, if you are wrong on the move of the price of sugar, your loss is only what you paid for the option. Secondly, options are usually far less expensive than buying the futures contract outright.
The International Exchange (ICE) offers an options contract on sugar futures.
Pros
- Less risky than sugar futures.
- Usually much cheaper than futures.
Cons
- Options on futures have expiration dates.
Invest in sugar ETFs
ETFs are another option worth considering. ETFs trade as shares on exchanges the same way that stocks do. They give access to a whole load of assets, without having to put all of your money into one or two firms. If you need to brush up on ETFs, check out our guide.
ETFs allow investors to minimise risk, while taking advantage of the performance and general popularity of a particular sector.
There are three popular ETFs that invest in Sugar No. 11 futures: iPath Dow jones-USB Sugar Total Return Sub-Index ETN, Teucrium Sugar Fund and iPath Pure Beta Sugar ETN.
Pros
- ETFs allow portfolio diversification and risk management.
- Lower costs than open-end mutual funds.
Cons
- By placing your money in an ETF, you are trusting your portfolio to a robo—adviser meaning you relinquish some control over the split of assets.
How much is sugar worth
What are the factors driving the price of sugar?
Sugar is a volatile commodity, meaning investing could come with substantial gains or losses. This is largely due to the number of factors that impact the price of sugar. These include:
- Global supply and demand: If farmers expect higher demand they will plant more crops and when weaker demand is expected, they will plant fewer crops. If global demand exceeds or falls short of sugar supplies, prices are affected accordingly.
- The Brazilian Real: Fluctuations in brazil’s currency can majorly impact sugar prices. 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, Brazilian farmers are more likely to sell in the local market. A weak real means greater supply on global markets and lower prices.
- Government Subsidies: Government subsidies and tariffs are used to protect local sugar producers. These distort the market, creating artificially high supply and depressing prices.
- The Weather: Poor weather conditions can affect crops and reduce supply.
- Health concerns: Health risks have left governments under pressure to take action against high obesity rates. This could mean sugar taxes or restrictions, leading to a decline in consumption and a fall in prices.
- Ethanol Demand: Sugar can be used to make ethanol, ethanol competes with gasoline as a fuel source. Thus, a fall in oil prices could depress sugar demand for ethanol while an increase in oil prices would mean higher demand for sugar.
Frequently asked questions
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