Invest in Sugar: Stocks, ETFs & Derivatives (UK Guide)

Sugar is a versatile raw material whose value is beyond sweetener for your meals and drinks. The commodity have numerous use, from the preservation and fermentation of food products to the production of ethanol for use in the manufacture of fuels and as a chemical industries.

The versatility of this commodity makes its a highly valued asset by investors. In addition, improvements in extraction, production and refining techniques, both for sugarcane and sugar beet, have had a positive impact on global markets in recent years.

Sugar commodity trading (UK)

For the 2023/2024 harvest season, a global production of 187.9 million metric tons of sugar is estimated, which is 10.6 million tons more than the previous harvest and a growth of 6.0%.

Are you eager to invest in sugar? This guide will explain the sugar market and financial instruments to trade the commodity. Proceed on!

Introduction to the Sugar market

Sugar is a crystallized substance of white color and sweet taste obtained from cane plantations in tropical countries or from sugar beet in countries with more temperate climates.

It is mainly use as a sweetener for food and drink, making it is a very popular component of our daily diet. However, its excessive consumption is associated with various diseases such as obesity, diabetes and fatty liver, among others.

Sugar is one of the major global commodity with potential growth yearly. It production and processing make up about 22% of the economic output of Brazil. Global consumption should be around 1.4% annually, reaching an expected demand of 196 milllion metric tons in 2030

Types of Sugar produced

The production process of sugar from cane or beet includes, cleaning, crystallization and drying. The major type of sugar obtained varies depending on the level of molasses. From there, 3 varieties of sugar can be obtained:

  • White sugar.
  • Brown sugar.
  • Liquid sugar

Note: There are also other varieties of sugar only available for the food industry. They are highly processed to suit the industry use

Importance of Sugar in the industry

Sugar, in its different forms, is used in many industries, they include:

  • Dairy
  • Bakery
  • Sweets and candies
  • Alcoholic beverages
  • Non-alcoholic beverages
  • Canned and frozen foods
  • Animal feed
  • Biofuels and gasoline
  • Chemical products
  • Pharmaceutical products
  • Other miscellaneous applications

The consulting firm Markets and Markets estimated that the industrial sugar market will grow from 46.4 billion dollars in 2023 to 59.1 billion dollars in 2028, for an annual growth rate of 5%:

Best sugar stocks UK

Hand in hand with China and India, the Asia Pacific region maintains the largest market share, even larger than the shares of North America and Europe combined.

The causes of this growth are centered on the increase in the production of industrial beet sugar, as well as processed foods and derivatives. The increase in purchasing power in the Asian region has also influenced.

So, investing in sugar can give us exposure to a growing market, which is vital to identify the best alternatives to place your capital.

Main Sugar producers

Sugar ETFs UK

Sugar production extends all over the world and is a vital agricultural industry that provides a key raw material for a wide range of products. About 80% of global production is concentrated in tropical and subtropical climates where sugarcane is grown, while the remaining 20% comes from sugar beet grown in temperate zones.

According to the Sugar World Markets and Trade Report, published in May 2023 by the United States Department of Agriculture, the 10 Largest World Sugar Producers by thousands of estimated metric tons for the 2023-2024 harvest are the following:

  • Brazil: 42,010 (22.4%)
  • India: 36,000 (19.2%)
  • European Union: 15,475 (8.2%)
  • Thailand: 11,200 (6.0%)
  • China: 10,000 (5.3%)
  • United States: 8,369 (4.5%)
  • Pakistan: 7,110 (3.8%)
  • Russia: 6,336 (3.3%)
  • Mexico: 6,254 (3.3%)
  • Australia: 4,400 (2.3%)
  • Rest of the world: 46,981 (25.0%)
  • World total: 187,881 (100.0%)

Brazil and India lead the world production with 42 million and 36 million metric tons, respectively. Both nations account for 41.6% of the total global production.

The list of the main producers is quite heterogeneous and has a significant presence of emerging countries, which occupy 6 of the top 10 places.

It is worth noting that the main world exporters of sugar are Brazil, Thailand, India and Australia.

Main Sugar consumers

According to the same report, the 10 Largest World Sugar Consumers by thousands of estimated metric tons for the 2023-2024 season are:

  • India: 31,000 (17.2%)
  • European Union: 17,000 (9.4%)
  • China: 15,600 (8.7%)
  • United States: 11,499 (6.4%)
  • Brazil: 9,542 (5.3%)
  • Indonesia: 7,900 (4.4%)
  • Russia: 6,450 (3.6%)
  • Pakistan: 6,300 (3.5%)
  • Mexico: 4,414 (2.5%)
  • Egypt: 3,400 (1.9%)
  • Rest of the world: 66,940 (37.2%)

World total: 180,045 (100.0%).

India is the largest world consumer of sugar with 31 million metric tons, which represents 17.2% of global consumption.

The European Union, a block of countries, is in second place with 17 million tons.They are followed by China and the United States with 15.6 and 11.5 million tons, respectively.

These 4 countries account for 41.7% of all global sugar consumption, making them key players in the market.

As for imports, Indonesia, China, and the United States are the 3 countries with the most weight.

Factors affecting Sugar prices

There are several factors that can alter the price of sugar in the markets. Among the most relevant we can mention:

1. Weather conditions: Extreme heat or excessive rain can reduce crop yields, decreasing supply and increasing price.

2. Macroeconomic factors: The behavior of commodities is closely related to the level of economic growth, as, in general, the latter ends up driving the use of basic products through increased consumption.

3. Ethanol price: An increase in ethanol demand requires more sugar, which means an increase in crop demand and higher prices.

4. Trade policies: Government subsidies can encourage farmers to produce more sugar than the market requires, generating larger inventories and depressing prices.

5. Price of currencies: The value of the US dollar plays a fundamental role, as commodities are traded in this currency. A too strong dollar makes imports from the rest of the world more expensive and increases the value of its exports, while the opposite occurs with a weak dollar.

6. Changes in diet: We are increasingly aware that excessive sugar consumption is quite harmful to health. In the long term, this could affect sugar consumption due to fears related to diseases such as diabetes, obesity, and fatty liver, among others.

7. Geopolitical factors: The so-called ‘black swan events‘, which cause negative disruptions in the markets from political, military, social, health or other events, can affect the behavior of commodities. An example of this is the Covid-19 pandemic in 2020 and the Russian invasion of Ukraine in 2022.

All these aspects can affect the supply and demand of sugar and, in this way, end up influencing the prices of the raw material.

Financial instruments to invest in sugar

As said earlier, sugar is a significant commodity due to its versatility and multiple applications. If you are considering investing in sugar, there are four main financial instruments to invest directly or indirectly in the commodity:

Sugar Futures

Futures represent a binding agreement between two parties for the purchase and sale of sugar at a future date at a predetermined price.

Futures are standardized derivative contracts that are traded on an electronic exchange, such as the New York Mercantile Exchange (NYMEX) or the Intercontinental Exchange (ICE).

They are traded on margin (leverage), which is why their risk is greater than when trading a spot asset. In addition, you can avoid physical delivery through the contract rollover process.

Investing in sugar through futures has 2 advantages:

  • These instruments are traded on a centralized and regulated exchange where transactions are crossed, so there is great transparency in price setting.
  • They have low commission compared to other instruments such as CFDs.

Among the main contracts that we can trade we have

  • NYMEX: YO (No. 11).
  • ICE: SB (No. 11).
  • ICE: SF (No. 16).
  • ICE: SB.Z (No. 11-TAS).
  • MOEX: SA.

Best sugar stocks

This is the purchase of spot shares of agricultural companies and other related sectors represents an indirect investment in the sugar market.

In that case, you are not acquiring the raw material, but shares of companies that produce or market this product and its derivatives or others that participate in the value chain.

With the shares you make money through the payment of periodic dividends and/or the increase in their stock market value.

Next, we present you a list of companies related to the sugar sector directly and indirectly:

  • Südzucker AG (SZU.DE)
  • Cosan S.A. ADR (NYSE: CSAN).
  • Adecoagro S.A (NYSE: AGRO).
  • Archer-Daniels-Midland Company (NYSE: ADM).
  • Shree Renuka Sugars Ltd. (NSE-India: SRES).
  • Bajaj Hindustan Ltd. (NSE-India: BJHN).
  • Balrampur Chini Mills Ltd. (NSE-India: BACH).
  • EID-Parry Ltd. (NSE-India: EIDP).
  • Hershey Co. (NYSE: HSY).
  • Coca-Cola Co. (NYSE: KO).
  • Mondelez International Inc. (NASDAQ: MDLZ).

Sugar ETFs

An ETF (Exchange Traded Fund) represents a similar grouped investment instrument to a mutual fund.

They invest in a specific group of assets, such as stocks, indices and sugar futures, in exchange for the payment of a management fee.

Among the most notable ETFs on sugar assets we can mention:

  • WisdomTree Sugar (London: SUGA).
  • Teucrium Sugar Fund (NYSE: CANE).
  • iPath Bloomberg Sugar Subindex Total Return ETN (NYSE: SGG).

These funds have a large weight of sugar-based derivatives, which seek to replicate the price of this crop.

Investing in sugar derivatives

CFDs (Contracts for Difference) are derivatives that allow speculation on the price of an asset, but without acquiring the underlying.

To invest in sugar, there are CFDs that follow forward contracts and CFDs that follow shares of companies that participate in the sugar value chain.

Remember, unlike futures, CFDs are not traded on a single market. On the contrary, you need a broker for CFDs, that will counter all your operations.

Also, the commissions that brokers charge for operating with CFDs on sugar assets are based on the spread, which can be burdensome.

Remember that every investment carries an inherent risk, so it is necessary to safeguard our capital through money management rules.

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FAQs about Investing in Sugar

Is sugar a good investment?

Investing in sugar, like many commodities, involves a significant degree of volatility and risk due to a variety of factors that can affect market prices. These factors include weather conditions impacting sugar cane and beet crops, changes in global demand for sugar, government policies on sugar production and export, and competition from alternative sweeteners. While there are opportunities for substantial profits, especially for those who can accurately predict market movements or capitalize on short-term price fluctuations, the risks are also high.

What is the largest sugar company?

Südzucker AG, based in Germany, holds the title as the world's leading sugar manufacturer. As of July 2023, its market capitalization surpassed $3 billion, and it reported an annual sugar output of approximately 4.8 million tons.

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