Sugar could be the next commodity to soar in price, says Profit Hunter’s Manraaj Singh.

The price of sugar has risen 37% in the last year, and this was with a huge surplus. Next year, droughts in India and rains in Brazil — the world’s two biggest sugar producers — could create a shortage in the market.

Manraaj says these supply shocks have not yet been priced into the market, meaning sugar could be at the start of a huge rally…

Sugar probably isn’t the first thing that comes to mind when you’re looking for a great investment. But it should be.

Because the humble sweetener has been a star performer over the last year. Its price has jumped by 37%. And it made those gains despite the 11 million tonne sugar surplus this year.

Over the same time, the FTSE has fallen by 13%.

Sugar has been a fantastic investment. And the information that I have just seen tells me that it is still in the early phase of a huge rally.

As I’ll explain in a moment, there simply won’t be enough sugar to keep up with global demand next year.

And that tells me just one thing: the price of sugar is set to explode. And this is the time to position yourself to profit from it.

We are heading for a global sugar shortage

The price of the New York-traded raw sugar contract on which the price of our fund is based is up by 37% over the last year. And that’s despite the 11 million tonne global sugar surplus this year.

A huge part of the increase in global supply came from India. India is now the world’s second biggest producer after Brazil.

Indian producers exported 4.5 million tonnes of it this year. But exports could fall by 80% next year. Because its production is under threat from bad weather. And the global surge in food prices has encouraged farmers to switch to producing other crops like rice and pulses.

In fact, the Director General of the Indian Sugar Mills Association says that total exports may not be more than 1 million tonnes for the year to September 30th 2009. In June the group was still hoping to export as much as 2.5 million tonnes.

The net result of that is that the world is going face a shortage of sugar next year. Leading global sugar broker Czarnikow forecasts that global demand will outstrip supply by 3.3 million tonnes next year.

And that is going to sustain the rally in the price of sugar.

It hasn’t rained enough in India

What has really hurt the industry is the weak monsoon season in India. If you have ever been in that country during the rainy season, you will know what a big event this is.

The monsoon rains between June and September provide four-fifths of the country’s rainfall. Farmers rely on it to irrigate their crops. And this year, there has been a lot less rain than they had been hoping for.

So the sugar producers expect output to fall by 17% over the coming year. The country produced 26.5 million tonnes this year. That could fall to 22 million tonnes next year.

That may not sound like a big difference. But India is the world’s biggest consumer of sugar. The bulk of its production is consumed locally. So it is going to translate into a huge fall in exports.

And it is raining too much in Brazil

Of course this doesn’t all come down to India. Brazil is the world’s biggest producer of sugar. It is also the world’s biggest producer of ethanol. And an increasingly large part of its sugar output is being used to make that bio-fuel. In fact, 60% of Brazil’s sugar harvest is now turned into ethanol.

At the same time, Brazil’s sugar output is threatened by the opposite of what’s happening in India. In India, they haven’t had enough rain. In Brazil there has been too much of it. It has been raining in the central sugar-producing region of the country.

And that’s the last thing that the farmers want. Because the sugar crop in Brazil is harvested between March and November. That’s meant to the dry season. Instead the rains have increased humidity. And that lowers sucrose content of sugar cane that is processed into sweetener and fuel.

Brazilian producers have already reported a fall in output. But it is still too early to say how bad the impact will be on Brazil’s sugar exports…

But global demand is growing. And things don’t seem to be going the way they were meant to in world’s two biggest producers.

We are positioned to profit from this

But the global sugar industry still hasn’t priced in the shift from a production surplus this year to a shortage next year. That opens up a big profit opportunity for us. I have shown readers of my PROFIT HUNTER service a unique way to buy into the sugar boom. And it doesn’t involve investing in risky sugar options and futures to profit from the coming boom either.

Sugar is just one of the overlooked profit opportunities that we have uncovered on the PROFIT HUNTER service. What we specialise in is uncovering unique investment opportunities that mainstream investors don’t pick-up on. We’ve made big gains on investment as far afield as Papua New Guinea and Australia and as close as the London Stock Exchange.

P.S. If you would like to learn more about the Profit Hunter service and the sort of special situations investments that Manraaj focuses on, just click here.

Source: Sugar: The Next Great Commodity Boom?