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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (27790)	4/18/2005 4:28:17 PM
From: LTK007	Respond to of 116555

Sugar May Yield Sweet Returns For Investors (this reveals RSI-UN.TO is fully hedged and thus removes upside potential--if that is indeed the case i can't find a vehicle---still looking for a fund symbol for Dhampure:) By Michael J. DesLauriers 10 Apr 2005 at 09:15 PM EDT resourceinvestor.com TORONTO (ResourceInvestor.com) -- Between 1966 and 1974 the price of sugar increased more than 45 fold, from just 1.5 cents to 66.5 cents at its peak. Today, commodity gurus such as Jim Rogers believe that as demand begins to exceed supply within a decade, we could well revisit and surpass old highs. At Friday’s close, the price for a pound of raw sugar was 8.48c on the NYBOT (New York Board of Trade). The great volatility in the sugar market is a result of the fact that less than a quarter of world production is freely traded. The rest is mostly consumed in the nations that produce it under heavy government price controls, or traded between countries with long-term supply agreements. According to Jim Rogers in his new book Hot Commodities, three factors may prove instrumental in altering the supply/demand balance of the global sugar market. Brazil, China and oil. Brazil is the world’s largest producer and exporter of raw sugar, accounting for an estimated 20% of this year’s output. In the face of rising oil prices, Brazilians may decide to convert an even greater (currently around 50%) portion of their sugar production into ethanol. Ethanol, which is distilled from sugar cane juice, is used for ‘gasohol’, a cheaper, cleaner alternative to gasoline and currently makes up about a quarter of the country’s gasoline needs. In doing so, Brazil’s sugar production would be constrained, further increasing the stress on global inventories which are already at their lowest level in over a decade. The influence of the Chinese in all commodities is a compelling story and is well known in the resource community. Sugar is no exception. Chinese sugar consumption is increasing well above the global average and with 10 million peasants moving into the cities every year an end is not in sight. According to Jim Rogers, “while Chinese tastes have traditionally resisted a lot of sugar in the diet, evidence from around the world, including Asia, indicates that there is a direct correlation between increasing affluence and sugar consumption regardless of culture”. If this is borne out in China, the implications are stark given its sheer size. Unfortunately, an equity play on sugar is hard to find. Canada’s only listed sugar producer [TSX:RSI.UN] is an income trust that is fully hedged, removing upside exposure to any move in the commodity. The same is true in the US, where prices are supported at a multiple of the market price, and there doesn’t appear to be a suitable equity vehicle. Nevertheless, buying the commodity directly, as illustrated by the enormous move in the sugar price in the 70’s could prove to be a very profitable investment, even without the use of leverage. As demand begins to overtake supply and fundamental market influences such as those listed above take hold, the specter of a significant, if temporary spike, seems likely. The only thing sweeter than making a tidy return on a smart investment, would be taking delivery on 112,000 lbs (one contract) of raw sugar!