From the October 01, 2010 issue of Futures Magazine • Subscribe!

I want sugar

Sugar has already been on quite a ride this year. According to some analysts, though, that ride is far from being over. We started the year with record highs, but as the Brazilian harvest came in we saw those prices drop amid a sluggish economy. Now, as logistical problems are keeping some ships in Brazilian harbors waiting up to 29 days before being loaded, prices have rebounded.

Spencer Patton, chief investment officer at Steel Vine Investment, sees an increase in world demand playing a role in current prices. "The first thing that is craved when a population really begins gaining their economic footing is the delicacies of life – the sugary, sweet things. When prices got to about 14 cents a pound, towards their lows this year, we saw a lot of countries that were taking delivery of sugar. It really went a long ways toward putting a floor in the market that said there was real value at 14 cents and prices have just spiraled up since then," he says. Factor in the coming fourth quarter, complete with sugar rich holidays like Halloween, Thanksgiving and Christmas, and Patton sees prices between 20 and 24 cents through mid-October with a bullish bias.

Shawn Hackett, president of Hackett Financial Advisors, disagrees saying the Indian crop is going to provide some relief. "We are still feeling the ramifications of two back-to-back catastrophically low Indian sugar crops. We had temporary relief from some large Brazilian crops that are running into some bottlenecks trying to ship out what’s. We’re kind of stuck in this middle ground now, but it’s a temporary secondary supply issue that should end here pretty soon and probably lead to crashing prices like it did before," he says. Hackett expects India to export around two metric tons of sugar this year that will go a long ways toward resolving some of the recent drawdown. "I’m pretty bear on this market. I think we can see prices that will move back into that 13 to 15 cents level by mid-October," he says.

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