Traders looking at sugar commodity trading as a way to gain exposure to commodities as an asset class have some great opportunities, particularly with global agricultural prices looking set for long term increases. In the early 1970′s sugar prices surged over 60 cents a pound and by over 40 cents a pound in the early 1980′s at the tail end of the 1970′s commodity bull market. Following the adverse impact of the global economic crisis in 2008, commodities in general and sugar commodity prices in particular are advancing strongly again, with sugar prices are at their highest for 28 years.

Serious sugar shortages across Asia are leading to long queues of consumers desperate for sugar in Pakistan and India, for example. In 2007 India was a net exporter of sugar by five million tons but by 2009 the country is a net importer. A range of factors have led to world sugar demand far outstripping supply. Following the global slowdown there are now hopes of strong recovery and together with a collapse in the US dollar against other major currencies, real asset prices are being driven higher. If you then factor in a weak monsoon in India and atrocious weather in Brazil which has affected sugar yields, the result is raw sugar prices surging towards a high of 25 cents a pound.

Firstly, as you embark on your sugar commodity trading journey, discover where sugar comes from, and see how a recent development in alternative fuels poses a challenge to global sugar commodity markets in future. With sugar produced in over 100 countries, largely from the tropical and sub-tropical areas of the southern hemisphere, around 75-80% comes from sugarcane. A key factor for successful crop yields is plentiful rainfall, and the annual optimum is around 600 mm. Sugar prices on world commodity exchanges can also be driven higher by crop infestation as a result of attacks by pests.

Key producing nations are led by Brazil, also the largest global exporter, then India, China, the EU, USA and Australia. Subsidy regimes in Europe and the US are a major distorting factor in world sugar markets, as they artificially support producers giving them prices higher than the world sugar price. As well as established uses in fruit and vegetable products and in bread fermentation, sugar is now increasingly used as a source of ethanol fuel.

In 2007 there was a very tight balance between supply and demand, a situation almost certain to worsen as demand is expected to surge in developing Asia, particularly in BRIC nations like China and India. The largest consumer in the world is India, which is allocating far more sugar for ethanol as an alternative fuel. The world’s third largest consumer and producer is China, and it is starting from a very low base of only 7kg per annum per capita consumption compared to USA per capita consumption of 45kg per annum.

Brazil is the largest world producer and understanding this market will help your sugar commodity trading strategy. Brazil aims to avoid a sugar glut by using the potential excess sugarcane crop to produce ethanol for biodiesel, an alternative to petroleum-derived gasoline. Growing use of sugar to produce ethanol has arisen alongside increases in crude oil prices and a surge in demand for sugar in China. With high crude oil prices likely in the future coupled with growing demand, producers face huge challenges to avoid higher sugar prices.

Confident in the tips from your professional financial adviser and your chosen commodity trading system, with good internet access you can trade from almost anywhere in the world. The most heavily traded sugar futures contract globally is #11 Raw sugar futures, available on the ICE US Futures platform as is the #16 Sugar futures contract. You could also try LIFFE CONNECT, the trading platform of LIFFE, part of the NYSE Euronext Group, to trade raw sugar futures. If taking a leveraged position concerns you, why not look at a soft commodity index using an ETF. Growing sugar consumption in the BRIC economies along with rising demand for bio ethanol suggests prospects for sugar prices and sugar commodity trading look very exciting going forward.

Researching soft commodities, the author, Marianna Gomes, pens articles for the Commodity Trading Today website, a helpful online resource. Find out more about how you could benefit from sugar commodity trading suggestions here.