Wednesday, August 19, 2009

Sugar is going to be dear?.....One should accumalate it...

The World's Sweetest Investment

While zinc, copper and oil have all reached their highest levels of 2009 in the past few weeks, the commodity hitting the headlines most recently has been sugar. Benchmark raw sugar futures recently hit a 28-year high of 23 cents per pound. And by all indications, investors expect sugar to continue its relentless march upward. The number of call options to buy sugar at 40 cents a pound in New York next March has jumped six-fold in less than five months. Net long positions on sugar contracts traded on the New York Board of Trade are running at four to five times their normal levels to reach more than 200,000 tons. The implications of sugar's sharp moves up go beyond the higher prices you'll be paying for candy bars. Understanding where it is trading within the context of a classic "boom-bust cycle" can help you to make money from sugar both on the way up, and on the (inevitable) crash down.

The World's Sweetest Investment:

A Story of Supply and Demand Right now, sugar is caught in a perfect storm, its price driven by both fundamental factors and speculative fervor. On a fundamental level, sugar prices are soaring because the world is consuming more sugar than farmers are producing. Estimates on global production for the 2009-10 season are continually being revised down, almost on a weekly basis. You can blame El NiƱo. The warming of the Pacific Ocean has played havoc with global weather patterns. There's been too much rain in Brazil and too little rain in India. Brazil, the world's largest producer, was drenched by four times more rainfall than normal, making much of the sugar production too wet to harvest. And thanks to government-mandated production of ethanol, only about 43% of Brazil's sugar capacity is geared toward making sugar. Meanwhile, India, the world's second-largest sugar producer, had unusually low monsoon rainfall and suffered its driest June in 83 years. Production in Russia, Mexico, China and the EU has also fallen, as the EU has swung from exporter to importer this past year. At the same time, global demand for sugar is growing unabated. Global inventories are close to record lows and food companies are scrambling to secure ever-tightening supplies. According to the International Sugar Organization, world demand for sugar may exceed supply by 5 million tons in 2009-2010 after a record deficit of 7.8 million tons in 2008. And when production falls short of consumption for two years in a row, inventories become seriously depleted and the price of sugar tends to soar.

The World's Sweetest Investment:

Sugar Shortage Hits Home The global outlook for sugar is also wreaking havoc with the protectionist mess that is the U.S. Sugar Program. A vestige of the Great Depression, the Sugar Program has been artificially inflating the domestic price of U.S.-produced sugar to support the incomes of sugar-beet farmers on the Northern Plains and cane-sugar farmers in the South since 1934. Under its terms, the U.S. government guarantees a minimum price to domestic sugar growers by restricting imports and by buying and storing excess production. The result? Most years, the price that food companies pay for U.S. sugar is twice the world level. Current import quotas limit the amount of tariff-free sugar that the food companies can import in a given year, except from Mexico. At the same time, Mexico's domestic shortfall suggests that exports to the United States will fall dramatically from the 1.5-million tons shipped this year.The result? U.S. sugar supplies are set to drop 43% by September 2010 from this fall. The government estimates that sugar stocks will end next fiscal year, September 2010, with about 24 days' supply, compared with 63 days in 2007. Recently, Kraft Foods, General Mills, Hershey and Mars all warned of a severe shortage of sugar used in chocolate bars, breakfast cereal, cookies and chewing gum. In a letter to Agriculture Secretary Thomas Vilsack, they wrote that the United States could "virtually run out of sugar" unless the Agriculture Department allows them to import more tariff-free sugar -- specifically, an additional 450,000 tons of tariff-free sugar by Sept. 30. Coddled farmers are, of course, up in arms, fearing that artificially propped up U.S. sugar prices would be set for a fall. Each one-cent drop in the price of sugar costs them about $160 million.

The World's Sweetest Investment: Boom to Bust?

Global commodities investor Jim Rogers has also shifted his attention to sugar. Rogers argues that with Asia prospering and three billion people striving to join the global middle class, demand for sweets and sugar is set to explode. Food inventories are at the lowest they have been in decades. And sugar is still 70% below its all-time high of 66 cents in 1974. Sugar could triple from its current levels and barely reach nominal levels last seen when Richard Nixon was president. And adjusted for inflation, sugar would have to hit a mind-boggling $2.75 -- a 12x increase from its current levels. That said, the dynamics of sugar are different from zinc, copper and oil. You'll never hear about the coming crisis in "peak sugar." If sugar prices stay high, farmers can always plant more.And given growing cycles, it takes between 18 months and two years for sugar supply to meet demand. Sugar production in India, the world's second-largest producer, may jump as much as 52% to 25 million tons in 2010-2011 from 16.5 million tons in 2009-2010, as mills have already agreed to boost the availability of sugar to cool record prices. And historically, any price spike above 15 cents a pound has been often followed by a big sell-off within 18 months.In fact, sugar for delivery two years from now costs about 6 cents less than spot prices. That shows traders expect a price decline. The bottom line? There's probably a big bear market in sugar coming in 2011. The boom will be followed by an inevitable bust. Riding the wave up, as well as down, can make sugar a sweet investment, indeed.


  1. Dear Rajeev,

    I am impressed by your recommendations.
    Thanks for helping us.

    I want to buy Madhucon Projects @ 165 and Excel Crop care @105.

    Should i buy these now OR wait for some more correction?

    I can hold these for 5 years.


  2. Dear Priya,
    Excel Crop is an instant buy.Buy it now it is going to be a huge multibagger in next 2-3 yrs....Madhucon Project you can wait for some correction....

  3. Thanks for your valuable and much awaited comments rajeev.

    Can i have your email -ID?

    i believe madhucon, JMC, JaiHind and Gayatri are in same domain, so for a common man it is very difficult to uy all these stocks. Can you suggest one or two stocks out of these 4 ??

    Your reply is awaited by me always :-)


  4. Dear Priya,
    My email id is written at the top of my blog....

  5. Dear Rajeev,
    I read in a newspaper about a week or two ago an article on madhucon projects.

    They had stated that three of their road projects would be completed this year and they would start collecting toll. The profits from this was supposed to be fantastic and will probably rerate the stock.

    I am searching for the exact details and will post it once i get it.

    Thus i feel it is an opportune time to buy madhucon for long term. Look forward to your views and at what price do you suggest entering this stock

    Disclosure : i hold 850 shares and intend to add more

  6. Also PSL got another order from Gail for 200 cr and they had an interview on cnbc too.

    Mr Punj reiterated that they will maintain margins for this year same as last year and next year (2010-2011) they will have a big growth on topline and bottom line as they are expecting big orders.

  7. Rajeev,

    I am still waiting for answer


  8. Priya,
    I think JMC and Jai Hind Project are looking good at this level.The reason recomending them is they are JMC comes from Kalpataru Power ge and Jai Hind has great plans and future multibagger .Ofcourse all my recomends use to be multibaggers...
    As u know I never look at stocks if it is not going to give multibaggers returns....
    Buy some Sah Petro...which went up by 20% today....

  9. Dear Rajeev,
    I think i will have to change my name to mitsy to ghet an answer from you . LOL

  10. Aree nahi......I don't mean that...
    nor I am favouring anyone...according to the gender...all are equal to depends upon how much time I get to give an answer...if it is short and my answer is ready and I am free I try to write as early as possible...
    Wait for my answer...

  11. Ha ha , i was just kidding Rajeev.
    I know u have been answering all my queries.

    Actually am investing a bit more in equities next week and was studying which stocks to invest in at current prices as all shares have run up so much.

    Infact thanks to u i have 3550 shares of PSL. Also I have madhucon, gremach, sujana twrs etc.

    What i am not able to finalise is which stocks to invest more in ..

  12. Rajeevji i have bought KALYANI FORGE & LUMAX IND 50 each. i will hold them for next 2 years. what r the future prospects.

  13. Thanks Rajeev,

    I love your expert suggestions :-)

    I am buying excel Crop Care, JaiHind and Artson Engg for long term (5 years)

    I have one Concern about Jaiind Project... ITS BV is so Low Rs 43.

  14. Goldy,
    as usual they are multibaggers...atleast 3 times from here.....

  15. Priya,
    BV is always shouldn't be the criteria to invest.Growth visibility is the main parametres one needs to look when one invest.You are investing for 5 yrs and if the growth is not going to be there for any co till 5 yrs there is no sense investing in such stocks.

  16. Rajeevji any other picks which can give returns like Kwality Dairy other than these 2.

  17. Hi Rajeev,

    I am in front of you once again :-)

    Can i buy Max India at Rs192???? OR Should i wait for more correction in this scrip???

    I want to buy this for 5 years..

    please advice

    :-) bye


  18. What about Confidence Petroleum?

    It is the only indian company in LPG bottling....

    I am still waiting for your reply


  19. Mitz,
    I think Madhucon will consolidate from hereon and may even shed some points and may try to come back to 120-130 levels.
    Ofcourse these are my views and I may go wrong.
    As u have mentioned Madhucon bottom line will go up from next qr or so....I have been recomending all the Infra stocks since long when they were in 50's and 60's and they have been already up by more then 300%.There are many in other sectors as well.
    PSL Ltd is a great stocks let the people speak whatever they wants to.I love this stock....and many more in Infra like Marg Ltd,JMC,Jai Hind,Shree Ram EPC, Patel Eng etc etc which I have been writing since market was at 8k...

  20. Hey Priya,
    If I am free and if I know the answer I am always there.
    Well, Max India is a very good buy for 5 yrs.Just start buying in SIP manner so that u do not lose the opportunity of buying it.Buy 10% of Max India now and buy on further dips or when u feel comfortable.
    Confidence is a great stock but with those who have patience...

  21. hi rajeev...good informative blog...any idea on Camson biotecj and Asahi Songwon..Can these be Huge multibaggers in 3 yrs time??


  22. Thanks rajeev,

    i will buy max india and confidence petro for 5 years.... im a long term investor

    I have purchased below scrips for at least 5 years to ripe good benefit
    SREI Infra
    Surya Pharma
    Sicagen India
    IKF tech
    Parekh Aluminex
    Surya Roshni
    Sharon Bio
    Sabero Organics
    Lumax Industries
    Sicagen India
    Om Metals Infra
    JaiHind Projects
    Asahi Songwon
    Max India
    COnfidence Petroleum
    IMP Power
    RTS Power

    I would love your comments on above picks :-)


  23. hi priya..even though u've asked for rajeev's comments...jus thot wud share my opinion

    a lot of ur picks seem to be gud mid-caps, which should do well in ur investment period.

    below r some of the stocks i wud like to buy, given an opportunity at lower levels...

    Jet Airways
    Camson Biotech
    Asahi Songwon
    KS Oils
    Pioneer Distilleries
    Zen Technologies
    Bartronics India
    Sejal Architectural Glass
    Nitin Fire Protection
    Opto Circuits
    KEI Industries
    Arshiya International
    Subhash projects & marketing
    Punj Lloyd
    Kalindee Rail Nirman
    Jaiprakash Associates
    Jai Balaji Industries
    Rohit Ferro Tech
    Ennore Coke
    Selan Exploration
    Assam Company
    Shiv Vani Oil
    Confidence Petroleum
    IKF Technologies
    Southern online bio
    Moser Baer
    Suzlon Energy
    Core Projects

    You might want to look at some of these.

    Rajeev: Hope u dont mind me putting a list here. Would welcome ur opinion on some of these too.


  24. Priya,
    How much u wants to hold for multibagger return but don't forget to sell 50% of that stock as soon as it doubles and make the rest FREE......Take your money out and that is the correct way of investing....

  25. hi rajeev,

    today i spotted Accurate Transformer.... CMP 70..
    Details are as below...
    PE=3, industry PE=9, EPS 24, Sales of 26cr over mcap of 21cr, increse promoter holding from 37 to 41%, Reserve of 29cr over eq of just 3 cr..

    Dont you think taht it is a Bonus Candidate.... Also going to be a great multibagger....??

    waiting for your comments eagerly...



  26. Dear Rajeev,

    What is your take on Kernex Micro. Is it worth investing in this company at present price ??

  27. Dear Rajivji,
    I am following your blog since last six months and have read your older blogs also. I think you are a genius but exception is always a rule.
    I want to ask you that I am holding zen technologies (200) from last 3 years. Does this company hold promise & simulation and games are poised for good growth. Rakesh Jhunjhunwala is also having 10% stake in this company. His close associate Utpal seth is also increasing his stake slowly. I understand that training will not remain in the way we are getting. It will change because human civilisation has become faster and faster and there is universal truth that parivartan sansar ka shashwat niyam hai. Please guide me, with thanks

  28. Rajesh,
    Zen Tech , I do not track so no view.They are also in defence that's all I know.

  29. PRIYA
    accurate transformers has good financial ratios,i.e,ROCE is above 20%(very good)for last 5 yrs,the BVPS is growing ,the debt equity ratio is comfortable but what iam not comfortable is with the sales growth and EPS growth rate which has been sluggish since 2008.
    i am not comfortable on those aspects.if someone can give visibility on those aspects then i think it is a buy candidate.