About two thirds of the world’s sugar production is grown from sugar cane, a plant which loves the warm weather and is grown abundantly in Brazil, India, China and the Southern US. The soft commodity can also be produced from sugar beets, which don’t need a hot climate and are cultivated in Germany, France and Russia. To make sugar, both cane and beet need to be processed, but the end product is the same regardless of the source.
Sugar prices follow a seasonal pattern, depending on which harvest is coming up and can be moved by extremes of weather during harvest time or plant diseases. Brazil is by far the largest producer in the world and news from the country tends to dominate the market. On the other end, the US, Europe and China are top consumers of the sweet commodity. Technically, the price of sugar should reflect the balance of supply and demand but many countries heavily subsidise their sugar growers to keep domestic prices low and prevent imports.
In countries like Brazil and India sugar cane is used not only to make sugar but also for ethanol which is mixed with petrol to reduce the cost of fuel. A rise in oil prices will typically prompt more ethanol production and the sugar cane will be diverted away from sugar processing, making it more expensive.
Sugar futures are both fairly liquid and volatile and are traded on the Intercontinental Exchange (ICE) in London and New York and the NYMEX division of CME Group. Another key exchange is Brazil’s Bovespa, which also offers ethanol futures. The two most popular futures are the Sugar No. 11 contract, the world benchmark for raw sugar trading, and Sugar No. 16, a contract for US-grown sugar which serves the hedging needs of local producers, merchants and end users. Both are traded on ICE and Nymex and are quoted in cents per pound. Sugar is also widely available as a CFD or spread bet and the price will usually be nominally based on the price of sugar futures in Chicago.