Sugar Ice Futures Contract
The Sugar No. 11 futures contract is considered the global benchmark for raw sugar. Sugar is used as a sweetener is thousands of products, and is converted from cane sugar to sugar that is consumed through a refining process. The contract reflects the price of physical delivery of raw cane sugar, which is delivered to the buyer’s vessel, in a free-on-board state to a port within the country of origin of the sugar.
Overview
The ICE Sugar futures contract allows for growths of sugar from several countries which is printed on the Intercontinental Exchange web site. Growths of “Argentina, Australia, Barbados, Belize, Brazil, Colombia, Costa Rica, Dominican Republic, El Salvador, Ecuador, Fiji Islands, *French Antilles, Guatemala, Honduras, India, Jamaica, Malawi, Mauritius, Mexico, Mozambique, Nicaragua, Peru, Republic of the Philippines, South Africa, Swaziland, Taiwan, Thailand, Trinidad, United States, and Zimbabwe”.
The price quotation for the sugar contract is in cents and hundredths of a cent per pound to two decimal places. Each contract size is 112,000 pounds of sugar. The minimum price movement for each futures contract is 1/100 cent per pound which is equivalent to $11.20 per contract.
The delivery points include any port in the country of origin or in the case of landlocked countries, at a berth or anchorage in the customary port of export. For every country listed on the ICE website, a vessel can take delivery. The grade of sugar that needs to be deliver, which will be inspected by the buyer, is raw centrifugal cane sugar based on 96 degrees average polarization. Since the delivery point is not a regulated ICE warehouse, sellers will need to provide the necessary paper work to insure the appropriate grade for delivery.
The raw sugar is delivered and held in warehouses and eventually delivered to a sugar refinery. The standard refining process, starts with a centrifuge process where raw sugar is mixed with heavy syrup in an effort to remove the outer coating of the raw sugar crystals, which is less pure than the crystal interior.
How to Trade
Sugar on the ICE exchange is traded as a raw product as well as a refined (white sugar) product. There is much greater liquidity on the ICE #11 contract, which is the raw version. Contracts are traded as outright direction trade or spread relative to future delivery dates. One of the issues sugar traders face is subsidies that given to sugar producers and refiners by government which allows the price to be lower than the market value. The reason for this is because as much as 80% of all sugar produced is consumed in its country of origin.
To determine the market sentiment of the ICE Sugar contract, you can evaluate the futures positions held by hedge funds (managed money), which is released by the Commodity Futures Trading Commission, weekly on their Commitment of Traders Report. The report which is released every Friday, shows open positions as of the prior Tuesday. The CFTC breaks down futures and options positions held into 3-categores which include: Swap Dealer, Managed Money and other reportable (smaller traders). Swap dealers are generally taking positions to hedge exposure that was transferred to commercials such as sugar refiners.
Positions in this category will generally remain static, as hedging is generally held until the contract is terminated. Positions held by managed money is speculative trades, and can give you a clue to a potential market move. You can use this information as a momentum play or a contrarian play. If hedge funds are all lined up on one side of the trade, you might see a snap back. If you see multiple weeks of managed money increasing or decreasing a position, momentum might be moving the sugar market.
Like all crop based commodities, including coffee, cocoa and corn, sugar supply and quality can be both positively and negatively effected by the weather.
