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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.
As with most commodities, there are a number of ways to invest in sugar, all with varying levels of risk.
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 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.
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.
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.
When it comes to sugar stocks and shares, there are two names to keep in mind: Imperial Sugar Company and Alexander & Baldwin (NYSE:ALEX)
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:
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