Commodities : Sugar

With the global economy showing signs of stabilization and recovery, demand for sugar is accelerating in developing countries, and ICE’s Sugar No. 11 markets are increasing in depth and liquidity. In the month of January 2010, more than $75 billion in notional value of Sugar No. 11 futures were traded on ICE Futures U.S. Average daily volume of 123,628 contracts was up 52% over January 2009. This represented the fastest start to the year of any contract on ICE Futures U.S., outside of the U.S. Dollar Index. Open interest in Sugar No. 11 futures was up nearly 30% from the prior January.

Produced in more than 100 countries, sugar is one of the world’s most important agricultural commodities. Sugar No. 11 is the global benchmark futures contract for raw sugar markets. As the principal export of a number of emerging economies, sugar is a food staple for a growing part of the global population. And, because sugar is the predominant component of ethanol — a key gasoline substitute — it is highly sensitive to global economic and political developments.

In late January of this year, Sugar No. 11 traded above 30 cents per pound for the first time since January 1981 as market prices reflected concerns for a substantial global shortfall. The International Sugar Organization recently projected a sugar deficit of 9.4 million tons following two years of surplus. As the global economy recovers, rising food and energy consumption is projected to increase the demand for sugar, coupled with anticipated supply constraints.

In Brazil, the world’s largest sugar cane producer, wet growing and harvest seasons have raised concerns about quality and production levels. Typically — and depending on oil and sugar prices — ethanol-production consumes more than fifty percent of Brazil’s cane crop, with the rest utilized for sugar production. India, the world’s largest sugar consumer and its second largest producer, last year became a net importer following sporadic monsoon seasons and two consecutive years of declining production. And last month, China announced higher sugar acreage, yield and production targets in response to anticipated future shortfalls.

While hedging is imperative for major sugar producers and consumers, the Sugar No. 11 futures contract also offers attractive exposure and volatility for a range of market participants.

For additional information, please see Sugar No. 11 on the ICE website.