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how about a little sweetness in your portfolio?

how about a little sweetness in your portfolio?

sugar is a commodity that scares people. it is volatile and unpredictable. but things are changing
July 4, 2021
3 min read
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how about a little sweetness in your portfolio?

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how about a little sweetness in your portfolio?

sugar is a villain these days. fitness influencers hate it for the calories, FMCG companies dislike the price rise, and stock brokers call it unstable. 

but the commodity isn’t all that bad, except for the inbuilt volatility. every couple of years we see a bumper sugarcane crop cause a fall in prices. at other times, there is scarce rainfall and the water guzzling crop suffers. 

yes, sugar is volatile. prices are at ₹36,900 per tonne, up 13% in just two months. this is the highest since November 2017. the sudden spike in prices was due to a gradual economic recovery and rise in exports.

a bittersweet deal

government decisions affect sugar prices too. in August, the Indian government increased the minimum price that mills have to pay to sugarcane growers by 5 per quintal. it may mean nothing for a consumer, but it triggers a domino effect across the supply chain, and that causes a price rise. International factors also play a part. the world’s largest sugar producer Brazil could see a 10% drop in sugar crop output due to adverse weather. this would drive the prices higher.

is the bull on a sugar rush?

yes, but perhaps not for long. prices are expected to stabilise soon. analysts expect the cyclical prices to hold firm around  ₹37,000 per tonne levels. industry bodies expect prices to remain stable till January 2022 since Indian production and exports have also been stable. 

the government has also cleared subsidies worth  ₹1,800 crore for sugar mills to export 6 million tonnes in the 2020-21 season. this means the mills won’t have to hike prices to pay the immediate farmer dues of  ₹8,300 crore. 

can a retail investor get in?

one doesn’t need to be a farmer or a mill to trade sugar. there are sugar stocks and sugar futures.

sugar company stocks are a good choice to start with. share prices have moved upward ever since sugar mills were given sops to make ethanol. the festive season also tends to move the stock price up since consumption of sugar is higher.

the more adventurous may choose to trade in sugar on the commodity exchange NCDEX. there are spot prices for buying and selling, and also forward contracts for those crystal ball gazers who want to place longer bets.

at the end of the day, sugar is cyclical. that’s something investors have to deal with. experts know when prices are likely to rise and when they’re likely to fall. but changes in climate, actual and political, can sometimes make it a sticky security for newer investors.