Hedge funds find new sweet spot in sugar

Date: Wednesday, September 30, 2009
Author: Paul Tharp, New York Post

Sugar is the new crude oil for investment-hungry hedge funds, which are pushing sugar prices near 30-year highs and ushering new global shortages.

After their infamous and massive bets on crude oil sent prices doubling and brought $5-a-gallon gasoline a year ago, hedge funds are now pouring their billions into raw sugar.

Sugar prices have doubled since springtime, causing US officials to consider lifting tariff barriers so that more imported sugar can reach food and candy makers.

Analysts say hedge funds are in search of high profits on commodity gambles, since returns on stocks and bonds are meager and less certain.

"The fundamentals and macroeconomic factors are coming together and more money is there," said economist Sergey Gudoshnikov of the International Sugar Organization. "Sugar is one of the better commodities for investing and the fundamentals are helping."

Weather problems at major producing areas in India and Brazil, along with increased use of cane for creating ethanol, have helped fuel hedge funds' sugar highs.

In trading here yesterday, raw sugar surged as much as 4.4 percent to 25.15 cents a pound before settling at 25 cents, up 3.5 percent, the highest close since 1981.

Betting by hedge funds and large speculators that sugar futures will jump has soared 77 percent this year, said the US Commodity Futures Trading Commission.

Demand is expected to remain high, in part from production that's already in short supply. The International Sugar Organization projected a record deficit of 10.4 million tons in the current season.

Sugar consumption is also surging faster than expected, with consumers currently using 8.3 million more metric tons of sugar than is produced -- up dramatically from the 5.1 million shortfall forecast in June.