Sugar is the umbrella term for sucrose, lactose and fructose, which are edible carbohydrates. It is derived from two plant sources, namely sugar cane and sugar beet. Sugar cane is the main source of sugar in tropical climates, whereas sugar beet can be farmed in much more temperate and mild climates, such as those in the United Kingdom. The juices of both of these plants are processed to produce a wide range of sugars, that may be either white or brown in appearance. Types of white sugars include castor and pearl, while types of brown sugars include muscovado and piloncillo. There are a number of sugar commodities traded on global commodity exchanges, but the symbol for the main sugar commodity, Sugar #11, is SB. A typical sugar futures contract will be for 112000 pounds, and is based on an average polarisation rate of 96 degrees.
Sugar is incredibly appealing as a futures option for the beginner trader. The margin required for sugar trading is small, and sugar commodity prices are generally considered to be fairly static and secure. Sugar is also only traded for three hours a day, between the hours of 9am and 12pm, so it is comparatively easy to monitor the market accurately. Sugar commodity prices are also generally low on a standard market day, so initial investment is relatively simple. Beyond this, sugar has a wide variety of uses and thus has high market appeal.
There are several commodity exchanges that deal in the trading of sugar: London’s NYSE Liffe (contract code: W), Intercontinental Exchange (contract codes: SB and SF), the Zhengzhou Commodity Exchange (contract code: SR) and the Brazilian exchange BM&F Bovespa (BM&F) (ticker symbol: ISU).
The main consumer/business market for sugar is the food industry. Sugar is used as a sweetener and to add texture and decoration to food items such as cakes. It is also used in the manufacture of certain cereals and is a key ingredient in the production of ethanol. Brazil is currently the world’s largest producer of sugar, producing over 30 million tonnes of sugar in 2006, which accounts for around 20% of the total world sugar production. Brazil was also responsible for almost 40% of the worldwide sugar export that year. A large portion of the sugar market stemming from Brazil is used to produce ethanol, which is a crucial component of the Brazilian economy. India is the second largest producer and the largest consumer of sugar, while the EU is the third largest producer.
The sugar commodity market and sugar commodity futures with regard to futures contracts can be affected by a number of factors. Sugar is one of the most heavily subsidized commodities worldwide and shifting government policies can greatly affect the sugar trade. The demand for ethanol is also an important factor to consider when attempting to predict future sugar commodity price, as biofuels become more appealing to buyers when the price of oil rises. This can affect sugar prices dramatically, and those trading in sugar futures stand to gain substantial amounts if the price of oil sky-rockets.
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