Sugar High

Most people take sugar on the table for granted, but soon it might be used for more than just sweetening your tea.

The USDA recently released its World Sugar Situation report for May 2008. The expected raw sugar production for the 2008-09 marketing year of 161.7 million tons will just barely meet estimated global usage of 160.8 million tons. Production is down 3.8 million tons, while consumption is up 4.6 million tons from the prior year.

But due to trade imbalances, the USDA estimates a 1.1 million ton shortfall in the 2008-09 marketing year.

“World sugar raw prices dramatically increased during the last six months reaching over 15 cents [per pound] in March before declining to present levels of under 11 cents [per pound],” the report read.

On its own, Brazil accounts for 20% of global sugar production. Asian countries account for 40%. Brazil, India, Thailand, and China, together, account for half of world production and 56% of world exports.

But if demand for ethanol continues to increase, as it likely will given current government production mandates, sugar could become even scarcer. Brazil uses sugar cane, rather than corn, which is favored in the United States, to produce the popular alternative fuel.

Imperial Sugar Co. (IPSU), one of the largest U.S. sugar refiners is currently planning the first ethanol plant that would run on a mix of corn and low-grade sugar. If approved, the plant could be up and running as soon as 2011.

If Imperial can find a way around government caps that currently limit how much sugar can be imported for non-food use, it could be very cost effective.

“It makes all the sense in the world,” State Representative Nick Lampson told The Houston Chronicle. “If you look at the world price of sugar, it’s less than 3 cents a pound. Our sugar price is about 19 cents a pound. That means we could produce energy for significantly less than what is presently being used to make ethanol from corn.”

With oil at record highs, cheaper ethanol could be set to become a very valuable commodity of its own. That could put upward pressure on the cost of sugar, especially if sugar becomes a cost-effective alternative to corn.

If you’re looking for some sweet profit plays, consider:

• iShares MSCI Brazil Index (EWZ): The largest South American country is one of the leading exporters of both coffee and sugar. This exchange-traded fund seeks to provide investment results that correspond generally to the price and yield performance of publicly traded securities in the Brazilian market as a whole, as measured by the MSCI Brazil Index.

• Imperial Sugar Co. (IPSU): Sometimes it pays to be first. And if Imperial can pull off its proposed hybrid ethanol plant, its profits could be set to take off. The stock is currently trading near its 52-week low of $13.83, but the firm has maintained its 7-cent quarterly dividend.

[Editor’s Notes: In Money Morning’s “Cashing in on Commodities” series we have written about uranium and coal, crude oil, timber and frontier markets. Next up: Look for our story on gold this Friday. While oil and other commodities have dominated the headlines, they’re far from the only investment opportunities available. And some of the other profit plays are more lucrative, and less risky. If the economic uncertainty - or the volatile markets - of recent months have you at a loss over the best moves to make next, check out Money Morning’s first book, “The Essential Investor’s Playbook for the Next 12 Months.” At 118 pages, our just-published global-investing guide provides an insider’s look at the Top 16 global trends you’re likely to face over the next year or more, and contains a special chart that details more than 50 profit opportunities. And it really is a playbook: No matter what the market throws at you, you’ll find a play you can call to maximize profits.]

Source: Cashing in on Commodities: Life’s Little Luxuries are Costing More than Ever Before

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