Many soft commodities ETFs may have had a rough patch lately, but not sugar. The rally in Sugar ETFs seems unstoppable with iPath Dow Jones-UBS Sugar Subindex Total Return ETN (SGG) returning over 30.2% in the last one month (as of March 21, 2016). Not only this, sugar ETFs hit a 52-week high on March 21, 2016.
Inside the Surge in Sugar ETFs
An output risk caused by adverse weather and stronger demand globally propelled the recent rally. Going by a recent article by Wall Street Journal, “Brazil, India and Thailand—three of the world’s top producers—are showing ongoing signs of production risk.” Inadequate moisture in these top growing counties is hurting the output, especially in Asia.
Though El Niño continues to weaken, the arrival of soggy weather is yet to be witnessed in Brazil, as per analysts. Notably, Brazil is the world’s largest sugar producer accounting for 40% of global exports. All these led to a reduced number of sugar-cane estimates which spurred the deficit concerns and boosted price (read: Can El Nino Boost Agricultural ETFs?).   
The other major sugar producing country China is also hit by droughts and is expected to cut sugar output. An Australia-based sugar analysis group slashed its forecast for Chinese sugar harvest for 2016 to 9.2 million metric tons from 9.5 million metric tons, per Wall Street Journal.
 
On the other hand, the demand scenario has firmed up. The trend can be validated by Rabobank’s projection that consumption will likely surpass production by 6.8 million metric tons in 2015–16, 2.1 million tons higher than its prior projection.
 
The recent weakness in the U.S. dollar against a basket of currencies, especially Brazilian real, is also supporting sugar prices. As per a few analysts, the sugar market will remain steady till the end of 2016. The deficit in output has been spotted after five years of glut, as per sources (read: Catch these Brazil ETFs on a Rebound).
 
If you too believe that the worst is over for sugar prices and that things might turn in favor of this industry, then any of the three products mentioned below could be interesting options to play sugar (see all Agricultural ETFs here).
 
SGG in Focus
 
SGG tracks the Dow Jones-UBS Sugar Subindex Total Return Index, which provides the returns that are in an investment in the futures contracts on the commodity of sugar. The note has garnered nearly $50 million in assets and trades in a daily volume of roughly 45,000 shares on average. It charges 75 bps in annual fees. The note was up 30.2% in the past one month and is up about 9% so far this year (as of March 21, 2016). However, the fund has a Zacks ETF Rank #5 (Strong Sell) with a High risk outlook.
 
Teucrium Sugar Fund (CANE)
 
This ETF tracks the Sugar Futures index, which reflects the daily changes of a weighted average of the closing prices for three futures contracts for sugar that are traded on ICE Futures US. The fund is nearly overlooked as it has gathered nearly $5 million in assets and trades in a paltry volume of around 9,000 shares. However, the ETF is expensive, charging a hefty 176 bps in fees from investors per year. It was up 24.4% over the last one month (as of March 21, 2016) and carries a Zacks ETF Rank #5 with a High risk outlook.
 
iPath Pure Beta Sugar ETN (SGAR)
 
This is another sugar ETN by iPath and follows the Barclays Capital Sugar Pure Beta TR Index. The index consists of a single futures contract but it has a unique roll structure which selects contracts using the Pure Beta Series 2 Methodology. SGAR is also neglected with only $1.0 million in AUM and is thinly traded with average volume of nearly 1,000 shares. The note charges 75 bps in annual fees and was up 23.9% in the past one month (as of March 21, 2016). It also carries a Zacks ETF Rank #5 with a High risk outlook.
 
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IPATH-BB SUGR (SGG): ETF Research Reports
 
TEUCRM-SUGAR FD (CANE): ETF Research Reports
 
IPATH-PB SUGAR (SGAR): ETF Research Reports
 
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