India Supply Concerns Boost Sugar ETFs

Heavy rainfall and inclimate weather have taken its toll on India’s second largest producing state having many investors worried that global supply for sugar will not meet demand sending prices higher and providing positive price support to the iPath DJ-UBS Sugar TR Sub-Idx ETN (SGG), the PowerShares DB Agriculture Fund (DBA) and the UBS E-TRACS CMCI Agriculture TR ETN (UAG).

Elevated demand for sugar has resulted in a diminishing supply of global sugar stock levels, pushing levels to their lowest point in 20 years and prices of raw sugar prices back up towards their 30-year high levels.  Furthermore, yields in Uttar Pradesh, which is India’s second largest sugar producing state, have been cut enhancing fears that India may not produce the expected 25 million ton crop that the global market place has been hoping for, reports Caroline Henshaw of the Wall Street Journal

As for the near future, global demand for sugar is expected to remain elevated and continue to increase as the global population grows and the purchasing power of emerging nations increases.   This global imbalance in supply and demand will likely provide positive price support to the previously mentioned ETFs.

  • iPath DJ-UBS Sugar TR Sub-Idx ETN (SGG), which is a pure play on sugar. SGG is an unsecured, unsubordinated debt security linked to an index designed to reflect the returns available on an unleveraged investment in futures contracts on sugar.
  • PowerShares DB Agriculture Fund (DBA), which gives exposure to agricultural-based commodities through the use of futures contracts; DBA allocates 12.5% of its assets to sugar futures.
  • UBS E-TRACS CMCI Agriculture TR ETN (UAG), seeking to track the performance of the UBS Bloomberg CMCI Agriculture Index Total Return, which measures the collateralized returns from a basket of 10 futures contracts representing the agricultural sector; UAG currently allocates 16.58% of its assets to Sugar #11 futures contracts and 4.28% to Sugar #5 futures contracts.

Disclosure: No Positions

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About etftutor
Kevin Grewal is the founder, editor and publisher of ETF Tutor and serves as the editor at www.SmartStops.net, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was a quantitative analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor's degree from the University of California along with a MBA from the California State University, Fullerton. He is contributing author on The Street - his articles can also be found published on various sites including Yahoo! Finance, The Globe and Mail , Daily Markets, MSN Money, Seeking Alpha, Fidelity Investments, Traders Library, and Minyanville. Prior to this, Mr. Grewal was an analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds

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