CANE - CANE: The Sugar High Is In

2023-07-03 12:57:27 ET

Summary

• Sugar, a crucial agricultural commodity, boasts a wide range of applications across various sectors.
• The Teucrium Sugar ETF provides investors with exposure to sugar prices without the need for a futures account.
• Investing in the CANE ETF can be an attractive option for investors seeking to diversify their portfolios.

Sugar, a crucial agricultural commodity, boasts a wide range of applications across various sectors. It is primarily recognized as a sweetener but has gained traction in the biofuel industry, particularly ethanol production. Its applications extend to unexpected territories, including the manufacturing of biomaterials, inks, cement, adhesives, and even alcoholic beverages.

And yet despite this, it's rarely actually in one's portfolio. Yet, with hindsight, nothing would have been sweeter. I like the idea of holding commodity funds in an overall asset allocation for the diversification benefits, and it certainly helps when prices diverge. A quick look shows just how well Sugar has performed relative to broader commodities.

The Impact Of Weather Patterns On Sugar Production

One of the key factors contributing to the price surge in sugar is weather. The arrival of El Niño, a weather phenomenon notorious for causing droughts in India, has put the country's sugar crops at risk. As the second-largest sugar exporter, India has been forced to limit its exports for fear of meaningful production loss.

In different parts of the world, weather patterns have also adversely affected sugar production. For instance, the extreme summer heat across Europe slashed the sugar beet crop yield. Unseasonably heavy rainfall in Brazil, the top global sugar producer, has delayed sugar cane crushing and production.

All of this has contributed to actual inflation at the margin, given that Sugar Manufacturing is at an all-time high in the U.S. Producer Price Index.

Spotlight On CANE

The Teucrium Sugar ETF (CANE) by Teucrium provides investors with exposure to sugar prices without the need for a futures account. It reflects the daily changes in percentage terms of a weighted average of the closing settlement prices for three futures contracts for sugar.

Investing in CANE can be an attractive option for investors seeking to diversify their portfolios. Commodities like sugar often behave differently than other asset classes, such as stocks or bonds. By adding a commodity-focused ETF like CANE to a portfolio, investors can achieve a better balance and potentially mitigate risks associated with market volatility. The correlation against the S&P 500 (SP500), as we can see, isn't strong. That makes Sugar an interesting diversifier to consider.

The Future Of Sugar Prices: A Short-Term Peak?

Having said all that, let's face it - people only want to diversify into things that will keep going up in the near-term (which of course means that isn't diversification). If weather patterns are not as damaging as forecasted, much of the recent price surge could reverse, and as you can tell from the CANE chart, there are some big trends one can play by accessing the fund.

Conclusion: Yes For Diversification, No For Timing

Predicting sugar prices is a complex task, given the numerous factors at play. From weather patterns and energy costs to export limitations and market deficits, each aspect plays a pivotal role in shaping the global sugar market. All of this makes sugar much more idiosyncratic I'd argue that an individual stock or bond, making CANE, I would argue, good for diversification purposes.

Would I personally consider buying it here at these levels? Likely not. The last few days saw a sharp reversal, and if the forecasts turn out to be wrong (an often occurrence when dealing with the unknowable future), then it might just make sense to wait for lower prices.

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