Can the price of sugar continue to rise after reaching an 11-year high? How should investors position themselves?

The Three Main Drivers Behind the Raw Sugar Market Rally

Recently, the raw sugar market has been exceptionally hot, with prices reaching a decade-high. However, this surge is not without cause. To capitalize on this trend, investors need to understand the underlying logic — it hinges on supply and demand imbalance, energy factors, and exchange rate fluctuations.

Raw sugar futures (No. 11 sugar) listed on the New York Board of Trade (NYBOT) are a key benchmark in the international sugar market. The contract size is 112,000 pounds, priced in cents per pound. Unlike the white sugar used in daily consumption, raw sugar is the precursor to white sugar and requires specific processing to become the familiar product.

Overview of the Global Sugar Industry Chain

From raw materials, sugar is primarily produced from sugarcane and sugar beet, with sugarcane accounting for up to 70% and sugar beet 30%. Originating in India, sugarcane is well-suited for cultivation in regions with fertile soil, abundant sunlight, and significant temperature differences between winter and summer. Today, over 100 countries produce sugarcane, with Brazil, India, and China leading in planting area.

In terms of trade flow, major exports of raw sugar go to Brazil, Central America, Cuba, Thailand, and Australia, while imports are distributed across the Far East, Africa, the Middle East, and North America. These raw sugars are further refined into white sugar at production or destination sites.

Interestingly, sugarcane is not solely used for sugar production. In Brazil, a large portion of sugarcane is also used for ethanol production, with an addition ratio of 20-25%, serving as automotive fuel. This is crucial — it links the sugar industry to the energy market. When oil prices rise and ethanol demand increases, more sugarcane is diverted for fuel production, reducing the raw material available for sugar manufacturing.

Three Perspectives on the Root Causes of the Sugar Price Surge

Supply Shock from Brazil’s Production Decline

Brazil is both the world’s largest sugar producer and exporter, so Brazil’s sugarcane output directly impacts global sugar prices. This year, adverse weather conditions in Brazil have led to significantly lower crushing yields, creating upward pressure from the supply side.

Structural Shift Driven by Rising Oil Prices

Last year, high oil prices in Brazil increased the profitability of ethanol production, prompting crushers to favor ethanol over raw sugar. As more sugarcane is diverted to ethanol, the amount available for sugar decreases, tightening global supply. Although profit margins for sugar gradually improved afterward, reversing this supply shortage takes time, and the market has yet to fully adjust.

Complexity of Exchange Rate Factors

The exchange rate fluctuations of the Brazilian real also influence sugar prices. When the real depreciates rapidly, exporters may prefer to hold physical sugar rather than convert to less valuable currency, leading to a temporary reduction in exports and further tightening global supply. However, if exchange rate movements are minor, their impact on supply is negligible.

Overall, the main drivers of this bull market are Brazil’s production decline and the diversion of raw materials to ethanol, with exchange rate effects playing a secondary role in this cycle.

Market Outlook: When Will Supply Pressure Ease?

Entering May, Brazil begins its crushing season. Since current sugar profits are higher than those from ethanol, crushers are inclined to increase raw sugar output and reduce ethanol production. This constitutes a mid-term bearish factor for raw sugar — as crushing volume increases, supply pressure will gradually intensify.

However, in the short term, due to slow progress in crushing, sugar prices still have support. It will take time to fully alleviate the supply tightness. Investors should closely monitor Brazil’s crushing progress and relevant economic data.

How to Approach Technical Entry?

For timing entries, investors need not overcomplicate. Technical indicators ultimately derive from price and volume data, so focusing on moving averages is sufficient.

For example, using the 30-period moving average on a 4-hour chart: when the price breaks above the moving average, consider entering long positions; when it falls below, consider exiting. This setup is relatively sensitive and can timely capture turning points, especially given that the bull market has already passed its halfway point and uncertainties are increasing.

Essential Risk Management for Investing in Raw Sugar

Like all leveraged trading, fund management and risk control are the lifelines of raw sugar investment. Although daily volatility in raw sugar is not extremely high, the trend persistence is strong — misjudging the direction without setting stop-losses can lead to rapid liquidation risks.

Additionally, raw sugar has positive or negative correlations with other commodities. Traders holding multiple positions need to evaluate the overall portfolio and the synergy of directions. For example, holding positions positively correlated with raw sugar will amplify leverage effects, increasing both gains and losses; holding negatively correlated positions can serve as hedges.

Furthermore, the sugar market also presents arbitrage opportunities between domestic and international markets, as well as between different product categories, which can be used for advanced strategies like arbitrage or hedging.

Key points: understanding the industry chain logic, monitoring supply changes, setting reasonable stop-losses, and controlling overall risk — these are the fundamentals for profiting in the sugar market.