Among Agricultural Commodities, Do Not Forget About Sugar
The story about corn and its astronomical ascent in recent weeks is by now well-documented. In other words, corn is quickly becoming yesterday's news as some traders start looking for the next big thing among agricultural commodities.
Soybeans have that potential. Supply and weather dynamics have aligned favorably for increased upside in soybeans, a product that the U.S. produces more of than any other country.
With corn, soybeans and to a lesser extent wheat commanding the bulk of the attention when it comes to agricultural commodities headlines, it is easy to assume that those are the only commodities delivering stellar returns. That would be wrong.
Oft-maligned sugar has been in a stealth rally of its own recently. Sugar is the subject of frequent criticism not only because of extreme volatility that can make trading other commodities look like child's play, but also because the sugar market has a reputation for being highly manipulated.
Criticisms aside, sugar prices are jumping for the same reasons corn has surged: a lack of rain. India is the world's second-largest sugar producer, but India's monsoon, which brings more than 70 percent of the country's annual rainfall, was 22 percent lower than a 50-year average since June 1, Bloomberg reported, citing the country's weather bureau.
Brazil, the world's largest sugar producer, could see its 2012-13 sugar crop hampered by overly wet conditions in its major sugar-growing regions. Translation: Brazil's crop may not be as large as previously expected and India may have to halt sugar exports.
These are the exchange-traded products that should benefit from sugar's sweet upside.
Teucrium Sugar Fund (NYSE: CANE) Thinly traded and small with just $1.57 million in assets under management, the Teucrium Sugar Fund functions in a similar way to the Teucrium Corn Fund (NYSE: CORN). That means CANE offers exposure to three sugar contracts: The second-to-expire Sugar No. 11 futures contract weighted at 35 percent, the third-to-expire Sugar No. 11 weighted at 30 percent and the sugar No. 11 contract expiring in the March following the expiration month of the third-to-expire contract weighted at 35 percent.
CANE has surged almost 12 percent in the past month and in the event of a pullback, needs to find support at $18.50. Upside from current levels could take the fund to the $23-$24 area.
iPath DJ-UBS Sugar TR Sub-Index ETN (NYSE: SGG) The iPath DJ-UBS Sugar TR Sub-Index ETN paints the picture of just how volatile sugar is. This was a $70 ETN in early June, but today, SGG is flirting with $90. A year ago, SGG was trading over $100. SGG is not a leveraged ETF, but it often feels like one because this ETN often notches double-digit percentage moves in either direction in just a matter of days.
Teucrium Agricultural Fund (NYSE: TAGS) Up until recently, the Teucrium Agricultural Fund was living a somewhat anonymous existence. With corn and soybeans prices surging, TAGS could not stay unheard of forever. The advantage of TAGS is that it is "the only domestic investment vehicle available for investors to obtain specific allocation to corn, wheat, soybeans and sugar in their portfolios without opening a futures account," according to Teucrium.
TAGS seeks to offer 25 percent exposure to each of the following: CANE, CORN, the Teucrium Soybeans Fund (NYSE: SOYB) and the Teucrium Wheat Fund (NYSE: WEAT). That composition makes TAGS a valid choice for those looking for some sugar exposure without devoting capital to a pure play on the highly volatile commodity.
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