Coffee and Sugar Prices Continue to Slide
- The last few months have seen coffee and sugar prices continue their relentless march lower, as adverse currency movements and bearish supply forecasts weigh on sentiment in both markets. The result is that coffee and sugar prices have fallen to low levels by historical standards prompting the question: has either coffee or sugar found a floor?
- We believe that, despite headwinds likely to come from weakness in the Brazilian Real, oversupply concerns for coffee are overblown and a correction could be in store as crop yields disappoint later in the year. The same cannot be said for sugar which looks likely to fall victim to another year of surplus supply.
Net Flows & Speculative Positioning
- In the last five months, speculative positioning in the futures market has turned increasingly bearish towards coffee and sugar (see Figure 1 below). However, we’ve seen falling prices prompt a total of US$121mn of funds enter long coffee and sugar ETPs year to date. With coffee at 18 month lows and sugar at six and a half year lows, investors appear to be using this as an opportunity to gain long exposure at attractive levels.
- Sugar to Sink Lower
The demand picture for the global sugar market is strong, as sugar consumption in China and India continues to grow to record levels. However, we believe that the demand side is overshadowed by robust global production, which looks set to add to already swollen sugar stockpiles (see Figure 2 below). Furthermore, with Indian authorities announcing in March that they will initiate subsidies to encourage sugar exports, the global market looks set to be flooded with supply. This should see the price of sugar continue its slump and move lower in the near term. Investors can express bearish views on sugar through short sugar ETPs that rise in value as the price of sugar falls.
Investors wishing to express the investment views outlined above may consider using the following ETF Securities ETPs:
- ETFS Coffee (COFF)
- ETFS Daily Leveraged Coffee (LCFE)
- ETFS Daily Short Coffee (SCFE)
- ETFS EUR Daily Hedged Coffee (ECOF)
- Swiss Franc Daily Hedged Coffee (CCOF)
- ETFS Sugar (SUGA)
- ETFS Daily Leveraged Sugar (LSUG)
- ETFS Daily Short Sugar (SSUG)
- ETFS EUR Daily Hedged Sugar (ESUG)
- Swiss Franc Daily Hedged Sugar (CSUG)
This communication has been provided by ETF Securities (UK) Limited (”ETFS UK”) which is authorized and regulated by the United Kingdom Financial Conduct Authority (“FCA”). The products discussed in this document are issued by ETFS Commodity Securities Limited, ETFS Hedged Commodity Securities Limited and Swiss Commodity Securities Limited (together the ”Issuers”). The Issuers are regulated by the Jersey Financial Services Commission.