Commodity Trading: Sugar Futures Rally While Silver Prices Slide (SGG, SLV, ZSL, AGQ, SGAR)

Jared Cummans:  The past week has seen a continued run in the bull market that has defined 2012. With economic data coming in strong on the home front and euro fears subsiding for the time being, the majority of assets have enjoyed healthy gains on the year. Commodities, on the other hand, are a different story. Given their inherent volatility, the direction of equity markets is often irrelevant to how a particular commodity behaves; it often comes down to economic trends and trading habits. The trailing five day period has watched sugar futures soar by more than 7.6% while silver has sank by roughly 3.4% [see also 25 Ways To Invest In Silver].

Sugar’s gains were sparked by troubling news from Brazil, the world’s leading producer of the sweet commodity. According to industry experts, “production in the Center South, the main growing region, may be 32 million metric tons in the season that starts in April, down from a forecast of as much as 34 million tons in February, after drought damaged crops” writes Yi Tian. Sugar’s progress in the past five days brings the commodity to gains of just over 13% on the year. Silver on the other hand, has been one of the best performing commodities on the year, but lost steam this past week as investors increased their risk appetite and moved into equities. For those who have strong opinions on where either of these commodities are headed, we offer ways to play them both below [see also Ultimate Guide To Sugar Investing].

How To Play

For sugar, the most direct method of obtaining exposure comes from No. 11 Sugar futures contracts offered on the NYMEX. Investors can also utilize ETFs, as the Dow Jones-UBS Sugar Subindex Total Return ETN (NYSE:SGG) offers exposure to front month futures contracts without the hassle of owning and maintaining a futures account. For silver, futures on the COMEX offer a direct means of exposure, though futures can be risky and difficult to trade. Perhaps the most liquid option out there comes from the iShares Silver Trust (NYSE:SLV)  which measures physical bullion. The fund makes for a perfect trading  option, as it has an ADV topping 25 million shares; however, given its  physical nature, it can also be an integral part of a longer-term  portfolio [see also 5 Best Performing Commodity ETFs Over The Last 3 Years].

Related: ProShares Ultra Silver (NYSE:AGQ), ProShares UltraShort Silver (NYSE:ZSL), iPath Pure Beta Sugar ETN (NYSE:SGAR).

Written By Jared Cummans From CommodityHQ  Disclosure: No positions at time of writing.

CommodityHQ offers educational content, analysis, and commentary on global commodity markets. Whether you’re looking to speculate on a short-term jump in crude or establish a long-term allocation to natural resources, CommodityHQ has the information you need.


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