Thanks to the ongoing geopolitical tensions in Russia, the energy commodity world has been in the limelight this year and has been performing quite well. Though that’s the case, there have been several winners in the soft commodity space too. Some commodities, such as sugar, have made fresh highs and are continuing with their uptrend.
A global supply glut for the past four years had led to huge stockpiles leading to a slump in sugar prices. However, things are expected to look up this year and prices likely to take a U-turn. Extreme weather conditions in Brazil – the world’s biggest producer and exporter of sugar – are expected to adversely hit sugar supply.
Moreover, a potential El Nino this year, a warm-water phenomenon that seldom develops off the Pacific coast of South America, is expected to bring extreme conditions to Brazil which looks to impact sugar production as well.
Also, El Nino can bring extreme dry weather to India – the world’s second largest sugar producer – which again will hit sugar crops.
While the supply for sugar is dwindling, the demand for sugar is quite strong. Global sugar consumption is expected to increase by 2.3% this year, which might give a further boost to sugar prices. China imported 411,132 tons of sugar last month, almost double the amount it imported last year.
Given the worsening supply situation expected in two of the most crucial sugar producing nations, Brazil and India, and a growing demand for sugar worldwide, there might be a global deficit for the sweet commodity. This is expected to give a breather to sugar prices and might bring an end to the bear market in sugar (read:Commodity ETF Investors Are Riding a Sugar High).
Expecting sugar prices to climb in the near term, a look at a top ranked ETF in the Agricultural ETF space would be the best option to capture this uptrend: