Sugar Futures

History of Sugar

The first use of sugar is thought to have been in Polynesia and from there found its way to India. Sugar was exotic in Europe until the Arabs started cultivating it in Sicily and Spain. The Spanish began cultivating sugar-cane in the West Indies in 1506, and in Cuba in 1523. The Portuguese first cultivated sugar-cane in Brazil in 1532.

Most cane sugar comes from countries with warm climates, such as Brazil, India, China and Australia The greatest quantity of sugar comes from Latin America, the United States, the Caribbean nations, and the Far East.

Sugar is used not only as a food additive but can be used to produce ethanol - a fuel additive.

Sugar Futures

Sugar futures and options markets provide a hedging vehicle for producers, exporters, candy manufacturers, trade houses, bakers, and refiners and dealers.

Managed commodity funds are another major participant in the sugar market. Arbitrage between the Euronext and the NYBOT sugar markets creates further liquidity. The primary contract traded in New York is for raw sugar and in London the main contract covers white sugar. The NYBOT sugar markets offer two sugar futures contracts: world Sugar No. 11, which sees the majority of the trading volume, and domestic Sugar No. 14.

The size of the Sugar No. 11 contract translates into a relatively small underlying value per contract. At 10 cents/lb., for example, one Sugar No. 11 contract would be worth $11,200 (112,000 X .10).

In 1982, options on the world Sugar No. 11 futures contract became the first U.S. exchange-traded agricultural commodity option since 1936.

See also: NYBOT, Euronext Liffe, Futures Trading Forum