Overlooked Commodity and How to Play it
Guess which commodity made the most money for investors last year, and in the first quarter of 2006! Not Oil, Gold, Copper or any other metal. Not ethanol, and certainly not soybean or corn. It came from SUGAR!!!
Sugar futures, were up 60% last year and despite the fact that they remain at multi-year highs, sugar remains well below its record price.
According to Jon Markman of MSN Moneycentral, "seeking to cut their reliance on petroleum and natural gas from unreliable regions such as the Middle East and Russia, governments in the southern hemisphere have reshaped their tax and industrial policies to favor the production and use of ethanol. That fuel is terrific and inexpensive, and it’s refined from the sucrose found in sugar beets, which are an annual grown in cold climates, and sugar cane, which is a perennial grass grown in hot zones."
While other energy sources like cor require as much energy to grow and refine as they produce, sugar production results in a huge net gain in energy output.
With oil close to $75 a barrel, ethanol and hence sugar is looking sweeter as the alternative energy source of choice. Of couse, t
he more sugar cane that goes into fuel tanks, the less there is available for our daily food intake and the increasing sugar demand from the Asian middle-class further fuels this demand (no pun intended), creating a sugar deficit. According to the Food and Agriculture Organization of the United Nations, world sugar consumption this year will exceed production for the third consecutive year by about 2.2 million tons.
So how can you and I make money from this sugar shortgage? Imperial Sugar (IPSU) comes to mind as a small sugar pureplay (think Imperial Sugar and Dixie Crystals).
Due to tight supplies, the company was able to boost margins by raising prices to its food service and wholesale customers by 9% in the first quarter. The stock has very little following on wall street and as more analysts pile on, the upgrades will propel this stock towards $42. Thats a 20% gain from these levels and I suspect this target is right around the corner (read June).
Jim Rogers has been right all along. Sugar, Corn, Soybean, Coffee, Metals and Oil — all commodities are in a long term bull rally and commodity bull cycles usually last 10-15 years.
– Faisal Laljee
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