Australian Sugar Harvest Season: What Investors Need to Know

From the desk of Robert Frances, APAC Director, easyMarkets.

Sugar production is a multi-billion-dollar global industry that is a major source of revenue for Australian farmers. For Australia, industry revenues reached $2 billion in 2015 following similar gains in each of the previous four years.[1] Approximately 80% of Australia’s sugar production is exported, where it is further processed.[2]

Australia’s sugarcane industry is located mainly along the country’s eastern coastline, where approximately 440 farming entities produce sugarcane on roughly 380,000 hectares of land. Along this vast coastline, up to 35 million tonnes of sugarcane is grown annually, which can produce up to 4.5 million tonnes of raw sugar. The industry employs 16,000 people across various sectors including harvesting, milling and transportation.[3]

In order to grow optimally, sugarcane needs significant sunlight, fertile soil and at least 1.5 metres of rain every year. Each crop takes about nine to 16 months to grow, which makes the industry heavily dependent on prevailing weather patterns.

Sugar production is just one component of Australia’s massive wheat belt economy, which consists of 135,000 farmers employing more than 300,000 people.[4]

Sugar options and futures are regularly traded in the financial markets due to their liquidity and high volatility. Sugar futures can be accessed on the New York Mercantile Exchange, Intercontinental Exchange and multi Commodity Exchange. Sugar contracts priced in US dollars might also bought and sold on the easyMarkets platform for traders looking to diversify into commodities.

Futures aren’t the only way to trade sugar futures. Exchange-traded products also offer exposure to the sweet commodity. Some of the most popular products include the Dow Jones-UBS Sugar Subindex Total Return ETN, the Sugar Fund and Pure Beta Sugar ETN.[5]

Like many other commodities, sugar investments are influenced by a myriad of factors related to supply and demand. There is some evidence to suggest that growing concerns over diabetes and obesity in advanced industrialized nations have led to a decline in sugar consumption in those countries.[6] However, according to the United States Department of Agriculture (USDA), global sugar consumption continues to outpace production, leading to a decline in inventories.

Global sugar consumption is forecast to reach a record 174 million metric tonnes in 2016/2017, exceeding production and lowering stockpiles to their lowest level since 2010/2011. Production is expected to rise by 4 million tonnes to 169 million, thanks to gains in Brazil and the European Union. Over the same period, Australia’s sugar production and consumption is expected to hold flat at 5 million and 1.2 million tonnes, respectively. New and expanded trade routes are expected to boost Australian exports for the foreseeable future, making investing in the sweet commodity potentially very profitable.[7]

[1] Australian Sugar Milling Council. Sugarcane Statistics.

[2] Canegrowers. How sugarcane is grown – paddock to plate.

[3] Australian Sugar Milling Council. Australian Sugarcane Industry Overview.

[4] The Conversation (August 26, 2015). “Australia’s five strong pillar economy: agriculture.”

[5] Jared Cummans (June 24, 2015). “How to Trade Sugar Futures.” Commodity HQ.

[6] Reuters (December 24, 2015). “Why Americans Aren’t Buying as Much Sugar This Year.” Fortune.

[7] United States Department of Agriculture (May 2016). Sugar: World Markets and Trade.

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