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While the precious metals and energy sectors have
garnered most of the media and investor's attention in the past year, Sugar
has quietly doubled in the midst of increase demand for a cheaper and more
environmentally friendly fuel alternative. As oil prices continue to rise in
the midst of global demand and geopolitical uncertainty, I expect Sugar
prices to rise substantially over the next several years. In fact, I believe
the agricultural sector in general will provide some of the best performance
in this multi-year commodity bull market.
Since my first recommendation to my clients and
newsletter readers in early December, Sugar has moved up over 50%. Although
part of this move up has been pushed up by speculative interests entering the
market, I also believe that it represents a further break out in a commodity
that will benefit from higher oil prices, stricter fuel emission standards,
and the demand for sugar as a food product.
Higher Oil Prices
Without question, the recent move up in Sugar has
been propelled by increasingly rising energy prices. Although some analysts
believe that the price of Oil is overvalued, I believe that oil is still
tremendously cheap at these levels. Once again, you cannot compare the price
of Oil in 1980 to the current levels that we have today. If you adjust the
price of Oil for inflation, you will have an all time high that is closer to
$100 barrel.
 
As you can see from the chart above, Oil is still
tremendously cheap at these levels. Additionally, I also expect the demand
for Oil to increase as China
continues industrializing their economy. Although Oil companies are
scrambling to find new oil deposits, this is not going to immediately
translate into more Oil supply. There is a finite amount of oil in the world,
and this is one of the reasons why countries are looking for other energy
alternatives.
All Eyes On Brazil
Although there has been a recent focus on Ethanol as
an alternative fuel, this concept has been successfully implemented by Brazil
over the last 30 years. Brazil's
ethanol program was initiated due to volatile nature of the 1970's Oil
market. At that time, Brazil
was reliant on other countries for the majority of their fuel. Today, Brazil is on
the verge of becoming energy independent. Because of Brazil's
profound success and the cheaper cost of Ethanol, a number of countries have
looked to implementing Ethanol programs.
The immediate implications of these new Ethanol
programs are that the demand for Sugar will increase dramatically. In fact, Brazil's
agricultural minister recently stated that they need $10 billion dollars in
investment by 2012 to keep up with the rising demand for Ethanol. As it
stands, the current Sugar supply will not be able to fill the increase demand
for the commodity. And this demand will continue to increase as Oil prices
continually head higher. Going forward, I expect to see Sugar prices trend in
tandem with higher Oil prices. Notice the chart below:
Other Demand Factors
While the demand for Sugar will come from a need for
a cheaper fuel alternative, it will also come from a need for a more environmentally
cleaner fuel. At the center of this issue is the
Kyoto Protocol which will require countries to decrease carbon emissions by
5% by 2012. Already, countries like Japan
and Sweden
have embarked on ethanol programs that will help them meet their emission
requirements. I expect this type of demand to increase as these countries
experience success in curbing emissions and as we get closer to 2012.
Coinciding with this demand for a cheaper and
cleaner fuel alternative is a demand for Sugar as a food product. In the last
50 years, we have seen a steady increase in world sugar consumption. I expect
this consumption to continually increase as we continue experiencing world
population growth. Furthermore, I also expect exponential demand for sugar as
a food product to come out of China,
India,
and other emerging economies.
As these continue industrializing their economies,
they will create further wealth for their citizens. Subsequently, this wealth
will trickle down into a greater consumption of food products often
associated with Western economies.
So Where Is Sugar Going From Here?
The increase demand for Sugar as fuel source coupled
with the increase demand for sugar as a food product, will ultimately
contribute to demand greatly outweighing supply. The end result will be new
historical highs for Sugar. As you can see from the chart below, sugar is
still cheap at these levels.
Corn Too?
Although I have specifically talked about Sugar in
this article, I also believe that we will experience record Corn prices in
the near future. Corn is also used to make Ethanol, especially in the United States.
Even as I write this, Ethanol plants are being constructed in Iowa to meet the
increase in demand for Ethanol blended gasoline. This past August, the U.S. energy
was signed into law whic h would require the
Ethanol consumption to double by 2012. Unlike Sugar, Corn prices have still
remained at historical lows. In fact, it has been one of the worst performing
commodities in this bull market. Going forward, I expect corn prices to stage
a vicious rally in 2006.
If you are interested in learning more about the
commodity bull market, I urge to pre-order my forthcoming book, "Commodities for Every
Portfolio: How To Profit from the Long-Term Commodity Boom".
Emanuel Balarie
Senior Market Strategist
Wisdom Financial, Inc.
Direct toll free: 866-465-0017
International: 949-548-2021
Emanuel Balarie is the Senior Market Strategist at Wisdom
Financial. As an expert on foreign markets, foreign currencies, and the
precious metals industry, Mr. Balarie often speaks
at public engagements and his research is regularly published in investment
newsletters. You can find out more about Mr. Balarie
and his services at www.wisdomfinancilinc.com
The risk
of loss in trading commodity futures contracts can be substantial. You should
therefore carefully consider whether such trading is suitable for you in
light of your financial condition.
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