Sugar, also known as table sugar or granulated sugar, refers to soluble and sweet-tasting carbohydrates used to sweeten food products. Initially, it was extracted only from sugarcane, which has been in use for thousands of years. But in the 18th century, Europeans started sugar extraction from the roots of the sugar beet plant.

Sugar futures trade on the CME and ICE, and one sugar futures contract (SB) is equivalent to 112,000 pounds of sugar. The price quotation is in cents, and hundredths of a cent per pound. The minimum price fluctuation is 1/100 of a cent per pound or $11.20 per contract.

Today, almost all the sugar consumed in the world is derived from the two plants, and the combined production of the two crops is in excess of two billion tonnes. With more than 160 million metric tons of sugar produced every year, the sugar market is expected to be worth over $53 billion by 2022, and sugar futures is the benchmark for the market.

Sugar Futures Contract Specifications
Symbol
SB
Exchange
CME and ICE
Tick Size
$11.2
Point Value
$1,120
Contract Size
112,000 pounds
Contract Months
March, May, July and October
Trading Hours (New York)
3:30 AM - 1:00 PM 03:30 - 13:00 // Pre-open 8:00 PM 20:00
Trading Hours (London)
8:30 AM - 6:00 PM 08:30 - 18:00// Pre-open 1:00 AM 01:00
Trading Hours (Singapore)
4:30 PM - 2:00 AM 16:30 - 02:00// Pre-open 9:00 AM 09:00
Settlement
Physical Delivery
First Notice Day
First business day after last trading day.
Last Trading Day
Last business day of the month prior to the delivery month
Last Notice Day
First business day after last trading day.

Uses of sugar

Sugar is not only used to sweeten foods — its applications range from food flavoring and preservation to biofuel production. Owing to its versatility, sugar futures contracts have captured the attention of traders and investors. Here are some of the most important uses of sugar:

Food sweetening: Sugar is used to sweeten a wide range of food products. From morning coffee to candies and ice creams, sugar is a regular part of most diets.

Texture modifier: The solubility of sugar and its texture makes it a perfect ingredient in making jams and jellies. It helps the gelling process and gives texture to those products.

Food preservation: Sugar inhibits the growth of certain microorganisms, so it helps in preserving baked foods.

Production of alcoholic beverages: Sugar is used in the fermentation process that produces alcoholic drinks.

Pharmaceutical products: In some pharmaceutical products, sugar is used as an excipient or a bulking agent to carry active ingredients.

Textiles: In the textile industry, sugar is used to size and finish fabrics.

Biofuels: Sugar is used to produce ethanol, which is an important biofuel.

The Largest Producers and Consumers of Sugar

sugar

Sugar Futures

Sugarcane and sugar beets are grown in various countries all over the world, but the largest producers of sugar are Brazil, India, the EU-28, China, Thailand, the US, Pakistan, Mexico, Russia, and Australia. While sugar is produced globally, the top 10 producing countries account for more than 75 percent of the world’s sugar production. In fact, Brazil and India alone account for almost half of the global production.

With the exception of Brazil, which exports a large percentage of its annual production, most of the top producers consume all the sugar they produce. The countries that consume the most sugar are India, the EU, China, and the United States.

Why Trade Sugar Futures Contracts

There are many reasons for playing the sugar futures market. It could be for speculative purposes, but it could also be a means to hedge against inflation or to diversify investment portfolios. The main stakeholders in the sugar industry come to the futures market to manage their price risks.

Hedging against price fluctuation: Sugarcane and sugar beet farmers, as well as the producers of granular sugar,  may sell sugar futures contracts to protect their product from price fluctuations, while the distributors and other users of the commodity, such as bakers and confectioners, may buy the contracts to maintain a stable supply of the commodity.

Speculation: The majority of the traders in the sugar futures market trade purely for speculative reasons. Their sole aim is to benefit from the opportunities presented by the volatile nature of the sugar market.

Diversifying portfolio: To some investors and fund managers, the soft commodity market provides an opportunity to diversify their investments away from stocks and bonds, and being a hugely traded soft, sugar futures is a place to start. Diversifying across several asset classes helps to reduce systemic risk.

Inflation hedge: Unlike the fiat currency, which depreciates during periods of high inflation, sugar prices increase when inflation is rising. So, some people invest in the commodity as a way of protecting their wealth against inflation.

How to Trade Sugar Futures

How to Trade Sugar Futures

How to Trade Sugar Futures

Sugar futures contracts are offered on the Intercontinental Exchange (ICE) and the New York Mercantile Exchange (NYMEX), which is a member of the Chicago Mercantile Exchange (CME) Group. The contracts can be traded from any part of the world through the CME Globex electronic trading platform.

One sugar futures contract (SB) is equivalent to 112,000 pounds of sugar #11, and the price quotation is in cents and hundredths of a cent per pound. The minimum price fluctuation is 1/100 of a cent per pound or $11.20 per contract.

The contract normally expires in the months of, March, May, July, and October. Trading stops on the last business day of the month preceding the delivery month. At expiration, the contract is settled by physical delivery. Traders, who don’t want to take or make delivery of the commodity, can roll over their contracts to the next expiration months.

All you need to do to start trading sugar futures is to create an account with the exchange through your futures broker and deposit the required margin. A sugar futures contract is a leveraged instrument, so you need not have the full dollar worth of the contract before you can trade it.

However, you should be cautious about leveraged instruments — while they can make you more money, they can also make you lose more.

Sugar Futures Strategies

Trading Strategy

Trading Strategy

Finding a trading strategy on the sugar futures market is quite a challenging task, and we don’t have that many trading strategies on this market. However, if you’re lucky to find a sugar futures strategy, then it will very likely add upp nicely in your portfolio, providing diversification and protection from market downturns.

If you want inspiration for your own trading strategies, we recommend that you have a look at our edge membership. As a member, you will get edges for a range of different markets!

Sugar Futures Seasonality

Here is a chart the shows the seasonal effects on the sugar futures market.

Factors That Affect Sugar Futures

There are many factors that can affect the prices of sugar futures contracts. These are some of them:

Trade policies: Government subsidies and tariffs can have a significant effect on sugar prices.

Ethanol demand: Sugar is used in making ethanol, which is an important biofuel. Ethanol demand is related to oil prices — higher oil prices lead to an increase in ethanol demand, while lower oil prices reduce ethanol demand.

Weather conditions: Since only a few countries produce the bulk of the sugar the world consumes, extreme weather events in those countries, especially Brazil, can have serious effects on sugar supply.

The Brazilian currency: Brazil is the largest producer and exporter of the commodity. Brazilian farmers are likely to export more of the commodity when their currency is weak.

Conclusion

Sugar is a soluble carbohydrate commercially extracted from sugarcane and sugar beet. It is used in making a wide array of products, including biofuel. Sugar futures contracts trade on the ICE and CME.

You can find more info about futures market here.

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