Will Sugar ETFs Keep Soft Commodities Down? [Teucrium Sugar Fund, iPath Pure Beta Sugar ETN]

sugarAfter a lackluster 2013, commodities across the board are gaining traction and have recently caught investor interest. Some commodities like natural gas, gold, silver, cocoa and coffee have been on a tear posting incredible gains from a year-to-date look, while others like wheat, tin, aluminum and copper have seen extreme weakness.

In fact, sugar has been one of the worst performing products, not only in the soft category, but also in the broad commodity space as well. Futures for raw sugar fell to the lowest level in more than three and half years largely thanks to record harvest from three big producers like Brazil, India and Thailand.

Further, sliding emerging market currencies are encouraging sweetener export, adding to the already robust supplies (read: 3 Commodity ETFs to Watch in 2014).

More Production Coming to Market

According to the International Sugar Organization, the global sugar supply is expected to outstrip demand by 4.73 million metric tons in the current 2013–2014 season, which ends on Sep 30. Brazil production is expected to grow 0.3% to 41.1 million metric tons while Thailand will likely boost harvest by 10%.

Meanwhile, India will produce 25 million metric tons of sugar this year versus demand of 23–23.5 million metric tons, as per the Indian Sugar Mills Association. With the start of this season, sugar stockpiles reached a five-year high of 8.85 million metric tons. Further, India’s move to provide subsidies on exporting sugar would add to the supply glut.

Excessive supplies along with tepid demand continue to weigh on prices, suggesting bearish fundamentals for sugar and the related ETFs. Currently, there are three choices available in this performing space, which are highlighted below.

Teucrium Sugar Fund (NYSEARCA:CANE)

This fund provides exposure to sugar market in a unique way and reduces the effects of both contango and backwardation. Unlike many commodity ETFs, this product doesn’t just cycle into the next month as expiration approaches, rather it utilizes a much more in-depth approach.

The ETF uses three futures contracts for sugar, all of which are traded on the ICE Futures Exchange. The three contracts include the second-to-expire contract, weighted 35%; the third-to-expire contract, weighted 30%; and the contract expiring in the March following the expiration month of the third-to-expire contract weighted 35%.

The fund has amassed just $2.3 million in its asset base and sees paltry volume of under 2,000 shares a day. The product is the high cost choice in the space as it charges a fee of 162 bps per year. CANE lost over 3% in the year-to-date period.

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