Is Sugar The Next Crude Oil?
by Lannie Cohen
July 2008
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Are we in for another big move up in the Sugar market? The fundamentals are beginning to point in that direction. The continued erosion of the US Dollar, concerns linger over weather in Brazil and India, the closure of Australia’s largest sugar mill, and rising consumer demand. Perhaps the most significant fundamental is the shift to sugar for Ethanol use.
The Next "Sweet" Crude
The US, Brazil and the European Union are moving forward to create global standards for ethanol, making it a commodity traded internationally. These talks are moving very quickly as the US introduced a bill to mandate the tariff on imported ethanol. If accepted, it would allow users and traders throughout the world to trade ethanol similar to gasoline and other commodities. The market efficiency and transparency would boost it’s demand usage as well.
The world is gearing up for massive production of ethanol. The US, Brazil and Europe have about 600 laboratories, 147 of those in the US alone (the world’s largest producer, consumer and exporter). These mills currently, primarily Corn based, have the capacity to produce more than 8.5 million gallons per year. Corn’s historical abundance, inexpensive price and political lobby has spurred the ethanol industry into high gear. However, with record high prices of corn due to crop losses in the Midwest flooding and rising demand outpacing supplies, the logical choice would be to switch and diversify with Sugar based ethanol production.
These demand factors put the Sugar market next in line for a large, broad-base, demand driven price rally. Recently commodities in all asset classes, (such as Crude Oil, Gold, Corn), have witnessed these demand driven price rallies. (see long-term price charts below)
Sugar is currently trading at 12.00 per pound, which is well off it’ two historical highs of 66.00 & 44.00 cents per pound, see chart below
NYBOT Sugar Monthly Continuous Chart
NYMEX Crude Oil Monthly Continuous Chart
CBOT Corn Monthly Continuous Chart
CBOT Soybeans Monthly Continuous Chart
COMEX Gold Monthly Continuous Chart
Cosan, a top Brazilian producer said, surging demand for sugar and ethanol could push sugar futures up by about a third in the next two years to 17 cents per pound.
In addition, weather in India is not ideal (the world’s second largest producer). The monsoon season accounts for most of the nation’s rains and is well below the average in the sugar growing regions.
A report by Dow Jones news service states Dow Chemical is in the process of acquiring farmland to grow sugar cane that should produce 8 million metric tons by 2012. As the price of crude oil continues to rise, Dow plans to use ethanol to make plastics.
A Potential Perfect Storm
In summary, my 25 years of experience has taught me that a demand driven market has the potential to create the largest moves. Take this current and future demands along with the current seasonal low (see seasonal chart below) and you have a potential perfect storm:
October NYBOT Sugar Futures 5 and 15 year Seasonal Chart
How To Trade Sugar Futures & Options
Sugar is traded on the New York Board of Trade exchange and is a 112,000 pound contract. That means for every penny it moves, it is equivalent to $1120.00 per contract. Example a move from 12.00 to 13.00.
You have the ability to place sell stop orders below your purchase price in an attempt to minimize you losses.* For example, if you buy one Sugar contract at 12.74¢ and want to risk approximately $500.00, you would place a sell stop at 12.29¢. (Risk-reducing orders and strategies are used in the form of stop-loss orders which are intended to limit losses to certain amounts may not be effective because market conditions may make it impossible to execute such orders.)
There is no length of time you are obligated to hold the contract you purchase and there is no penalty to sell it before expiration. Many trade futures contracts throughout the trading day, while others hold their contracts for the long term. You must determine what your suitability is for trading and your personal comfort levels.
We also have a “Scale- In” method of buying at set dollar amounts. This strategy buys into declines and sells into rallies with standing orders. In this manner, you remove all emotion from your trading and it forces you to buy into declines and sell into rallies** (We have developed a very specific approach to this strategy, call for details).
Finally there are Options on Sugar Futures available that limit your total risk to the amount you pay for the option. There are numerous strategies available with options upon request.
MINIMUM REQUIREMENTS TO GET STARTED
Margin Requirement (Good faith deposit)
112,000 lb. contract = $1,200
Options = $500 - $1,500
Call today for a Free Consultation with no obligation, to determine which strategy is right for you: 1-800-876-8050.
Lannie Cohen, President
Capitol Commodity Services, Inc.
www.ccstrade.com
lc@ccstrade.com
317-848-8050 Tel
317-848-8060 Fax
Capitol Commodity Services, Inc. was established in 1983. We have been servicing futures traders for over 25 years! If you are new to futures trading, we will help you every step of the way. Experienced traders can utilize our exclusive proprietary trading tools. Our rates are competitive, without skimping on the amenities. Our clients say they enjoy working with us and love the personal attention.
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Call today and ask about our special SUGAR commission rate,* *800-876-8050*.
THERE IS A RISK OF LOSS IN FUTURES TRADING AND IS NOT SUITABLE FOR
ALL INVESTORS. ONLY RISK CAPITAL SHOULD BE USED WHEN TRADING FUTURES.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
* THE PLACEMENT OF CONTINGENT ORDERS BY YOU OR YOUR TRADING ADVISOR, SUCH AS A "STOP-LOSS" OR "STOP-LIMIT" ORDER, WILL NOT NECESSARILY LIMIT YOUR LOSSES TO THE INTENDED AMOUNTS, SINCE MARKET CONDITIONS MAY MAKE IT IMPOSSIBLE TO EXECUTE SUCH ORDERS.
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