It’s important to understand the different types of sugar futures contracts before learning how to trade sugar futures.

The world’s raw sugar trade is benchmarked by the Sugar No. 11 (/SB) futures contract. The /SB contract prices the actual delivery or raw cane sugar. ‘No 11’ actually refers to the way that the shipping costs are handled between the buyer/seller of the contract. Sugar No 11 is sold as FOB (free on board), meaning that the seller will pay to ship the raw sugar to the port and is responsible for the loading costs. The only thing the buyer has to pay for is the unloading costs.

There is also a sugar futures contract (one that cannot be traded in the U.S.) that is used as the global benchmark for the pricing of physical white sugar (refined sugar) - /W. The white sugar futures contract is actively traded internationally by sugar millers, sugar refiners, and end-users (the manufacturers), as well as by managed funds and institutional/short-term investors. /W is a refined sugar derived from sugar beets and sugarcane.

Sugar cane is the world’s primary source of sugar with a 78% market share. In 2014, worldwide sugar production reached a record 161 million tons. Brazil led the way with 33 million tons of sugar and India came in at a close second with 27 million tons. The EU (European Union) came in third at a production level of 16 million tons.

Sugar No 11 Contract Specs

Sugar (/SB) Specs:
Contract Size (leverage) - 112,000 lbs
Current Price - $11.20
Notional Value -$12,544 * = ($.1120 x 112,000)
Tick Size - 1/100 cent/lb. ($11.20/tick)

Sugar No. 11 has contracts available to trade with a March, May, July, and October expiration. Sugar No 11 trading hours are limited and are from Monday-Friday at 2:30am CST to 12:00pm CST.

Sugar Production Process

Sugar cane grows best in hot weather climates which is why the major growing countries are Brazil, south Asia, the Caribbean basin and southern US. Sugar beets are actually grown in cooler, more temperate zones like the northern Great Plains, France, and Germany.

The sugar production process has actually undergone very little change since the 14th century. Sugar that is stored in the cane stalk or the beetroot is separated from the rest of the plant material.

To process sugar cane, the juice from the plant is extracted and then the syrup is crystallized. The raw sugar is produced by ‘spinning’ the crystals and then raw sugar is sent to a refinery for the final processing/packaging. Beet Sugar is processed in one continuous flow without the raw sugar stage.

Both sugarcane and sugar beets must be processed in raw sugar shortly after being harvested, otherwise, their sugar content drops immediately.

Sugar’s Use In The Ethanol Industry

A recent innovation is the use of sugar cane as feedstock for ethanol distillation. Sugar cane is by far and away the most efficient converter of solar energy into usable plant carbohydrates - it beats corn (at 1%) by a lot (8%). Sugar as a ethanol source has only recently become an important part of the sugar trade.

The price of sugar can be converted to the equivalent price of ethanol. This is achieved by multiplying the price/lb of sugar by .1477, giving us the price/gallon of ethanol.

Because ethanol is linked to the price of gasoline, one would assume that there would be an increased correlation between sugar, corn, ethanol and gasoline. In recent years, these correlations have existed and the rolling 6-month correlations have reached unprecedented levels. When the US tariff on imports from Brazil was lifted in 2011, the correlation between sugar that’s in your food and the gas that’s in your car has grown tighter than ever.

To learn more about sugar correlations, check out part 2 (LINK: http://ontt.tv/1ISS37a).

Strategies: N/A
Products Discussed In This Episode: /SB

*Values subject to change based on where the market is at