Bulls n' Bears


Commodity Market - Sugar

Introduction :

Sugar is a carbohydrate that is derived from sugar cane of sugar beet, both of which are available in abundance. It is produced in over 100 countries and over two thirds of them use the cane method of producing sugar. Sugar cane farming is seen in tropical climates while growing of sugar beet is seen in the temperate climate. The major producers of sugarcane are brazil, India, Thailand, Australia and Cuba. The major producers of sugar from beet are European union, USA, Turkey, Poland and Russia.

The Sugar industry has been helping ease fossil fuel supply shortages by way of ethanol which is blended with petrol. Sugar finds applications in food, medical, alcohol, and a whole lot of industries. Demand for Sugar is considered almost inelastic as it is irreplaceable.

Cyclical trading in Commodity Market in India for Sugar :

Most of sugar cane is crushed between November to April and sugar production starts in earnest thereafter in India. The crop figures start impacting the product prices prior to the crushing season. Traders in the markets may set up the trading regimen basis this seasonality. Long term commodity watchers may note that the commodity follows a 7 year long term cycle where the cane production rallies for 3-4 years (bullish period) and declines for 2-3 years (bearish period).  However, being an agricultural commodity, the same is dependent on whether, pest attacks, government declared support prices etc.

Sugar Commodity trading vis a vis Gold

The beta vis a vis gold  stood at 0.12 where 1 = base. The commodity has shown appreciation of over 39% in the Indian market over the last 1 year as of 2011 which is very superlative performance considering  the regulatory Indian market.

Trading Strategy for Sugar in Indian Commodity market :

Patient trend following in Sugar for  trading is the not the best thing to do in this commodity as the prices are tightly regulated. The cost of carrying range from 15-20% per year in the Indian market and hence remains a major constraint to buy and hold for traders. Short term trading techniques provide a relatively superior returns.