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IBDvalueinvestin (99.68)

Is shorting Sugar users a good idea now?

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August 13, 2009 – Comments (3)

Big name brands like Coke, pepsi, chocolate producers, & cookie companies use alot of Sugar, maybe they are short candidates now based on soaring sugar prices:

CZZ is a producer of sugar and ethanol in Brazil. U.S. sugar futures hit 28-year highs yesterday. Interestingly, nearby U.S. sugar futures are down 2% today, currently -0.49 cents per pound at 22.48 cents/lb. Prices outside the U.S. were lower today as well. The knee-jerk reaction in the stocks illustrates additional recognition by investors that the current sugar supply situation may be a longer-term theme. International and U.S. sugar prices have been rising sharply, benefiting the producers (IPSU and CZZ) but hurting the end users. The U.S. sugar market is protected by import restrictions, which cause prices in the U.S. to be higher than those seen elsewhere around the world; however, that gap has narrowed recently. Yesterday, nearby U.S. sugar futures rose to highs not seen since April 1981 due to unfavorable weather conditions affecting Brazil and India's sugar crop. World prices are affected so much by these countries because these are the top two sugar producing countries in the world, and for the 2009/10 crop season, Brazil and India are currently expected to produce 36% of the world's sugar supply. Poor weather in July led India's government to lower the country's crop expectations to 16-17 mln metric, tons from prior estimates of 20 mln metric tons. Poor weather in Brazil is also leaving sugar crop ending inventory at uncertain levels.

3 Comments – Post Your Own

#1) On August 13, 2009 at 2:19 PM, brickcityman (< 20) wrote:

I wish they were big sugar users...  instead they are big HFCS users.

 

 

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#2) On August 13, 2009 at 2:24 PM, portefeuille (99.60) wrote:

I think it is fair to assume that in the next 10 years sugar prices will not reach a level at which the advertising/sugar cost ratio is below 10 for KO.

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#3) On August 13, 2009 at 2:27 PM, portefeuille (99.60) wrote:

my guess is that the ratio currently is at around 30. too lazy to look it up ...

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