Sugar Rally Sugar Rally: Sugar on Top
by Chris Mayer
The Rude Awakening
Wall Street, New York
March 28, 2006 Chris Mayer explains that Jim Rogers' prediction of a Sugar Rally came true. ------------------------- - Putting your money where your mouth is – the sweet
taste of sugar profits,
- Sugar prices begin to decay the profit margins of
Coca Cola,
- Enjoying the profits like only a Texas company can,
the market data and still more...
------------------------- You are receiving this email as a part of your FREE
Subscription to The Daily Reckoning. Should you wish to
unsubscribe please follow the instructions at the bottom of
this email.
--- Special Alert ---
Warning: This Is Not for the Timid or Profit Shy! Sugar is rallying, gold is soaring and silver is punching
new highs almost daily... If there was ever a time to be excited about commodities,
it's NOW! Don't stand by and watch others bank the big bucks...Get in
on the action yourself! If you have the courage and fortitude for commodity
trading, you can get in on this virtually effortless
opportunity. http://www.isecureonline.com/Reports/RTA/ERTAG330/
-------------------------
Sugar on Top
By Chris Mayer
One fine morning in Paris, Jim Rogers met a French business
writer for breakfast at a local hotel. They talked about
sugar... Rogers, as many Rude readers are aware, is the famous
"Investment Biker" – a globetrotting investor who made a
fortune running a hedge fund. He retired years ago, at the
age of 37. Now he travels around the world and writes
books. On March 2nd of last year, in a very prescient
column for the Daily Reckoning entitled "Sugar High,"
Rogers recalled his conversation with the French writer:
"During one breakfast interview in a Paris hotel, a
congenial writer from a French business magazine who was
much more eager to discuss the falling dollar and the
surging euro - for obvious reasons (Vive la France!) asked
me what I would recommend for an ordinary investor like
her. I plucked a wrapped sugar cube from the bowl on the
table and handed it to her. She looked at me as if I had
gone mad. 'Put this in your pocket and take it home,' I
advised, 'because the price of sugar is going to go up five
times in the next decade.' "She laughed, eyeing her sugar with skepticism. I told her
that the price of sugar that day was 5.5 cents per pound,
so cheap that no one in the world was even paying attention
to the sugar business. I reminded her that when sugar
prices last made their all-time record run - soaring more
than 45 times, from 1.4 cents in 1966 to 66.5 cents in 1974
- her countrymen were planting sugar all over France. She
nodded – 'Supply and demand,' she said - and pocketed her
sugar. But I suspect that she has not put any of her money
where her mouth - or her pocket - is. "No one had for years, which, of course, was my point.
Sugar prices were so low for so long that it was the last
business enterprising souls around the world would be
likely to enter in the 1990s and early 2000s. If you are an
ambitious young farmer in Brazil (or Germany or Australia
or Thailand, also major sugar producing nations), do you
choose to produce sugar at 5.5 cents a pound or soybeans,
which closed 2003 near $8 a bushel, a six-year
high?...Sugar has had its boom times in the past - that
1974 record, and another spike in 1981 during the last bull
market in commodities. And if I'm right and we're in
another long-term bull market in commodities, we're likely
to see another sugar high...." [To read the rest of Rogers' remarks in that Daily
Reckoning column, click here:
http://dailyreckoning.com/Issues/2005/DR030205.html] The beauty of this story is that Rogers was dead-right. And
his prediction looks to come true early, as you can see by
the chart titled "Eye Candy." 
Sugar Rally: Sugar Runs Since Rogers' prediction, sugar is up threefold to more
than 17 cents a pound — its highest price in 24 years.
That's a better performance than oil, gold or a lot of
other commodities. Sugar has had some great runs in the past. It soared 45-
fold from 1966–1974 — hitting a record high of 66.5 cents. In his book, Rogers lays out a compelling scenario of tight
supplies and growing demand. The biggest part of the
argument involves Brazil, the world's largest producer and
exporter of sugar. The pieces of his argument have all come
together, with new wrinkles that he could not have
imagined. Brazil uses part of its sugar output for ethanol, more so
when the price of gasoline is high. That sort of shift has
a big impact on the sugar markets, as ethanol production
consumes more and more sugar. Current forecasts hold that
about 80% of Brazil's output will wind up in Brazilian
cars. That's one part of the demand equation. But there's more.
The human race has quite a sweet tooth. Not only is there
increasing demand for sweets in Western markets, but there
is also steady demand from places like India (the world's
largest consumer of sugar), Pakistan, Russia and China. Sign Up for The Rude Awakening Start your mornings off with a dose of Rude news. The Rude Awakening is dedicated to highlighting phenomena in the financial markets that others may not see. Let the Wall Street Journal and the New York Times "break news." Sign up FREE Today! We will not share your email address with anyone else, period.
-Andrew Palmer, Director E-commerce Marketing
We Value Your Privacy |
Sugar Rally: Hurricane Season Finally, there is significant demand for sugar from
investment funds built to deliver returns based on
commodity indexes. These funds have become more popular in
recent years with the strong performance of many
commodities. As a result, billions have poured into the
sweetener. These are the pieces of the story Rogers figured out. All
of this bodes well for demand. But there are supply
constraints as well, some stemming from issues he could not
have predicted — like the worst hurricane season on record. Hurricanes rolled over the Gulf Coast and damaged
refineries in Louisiana and destroyed sugar cane fields.
The storms devastated crops in south Florida, too. As a
result, the United States is importing more sugar to make
up for the shortfall in domestic production. Adding to the tight supplies is a dramatic decline in
Thailand's production — one of the world's bigger exporters
of sugar. According to Bloomberg: "The shortage is so great
in Thailand, where first drought and then flooding
decimated the harvest, the government has capped prices and
is threatening to jail hoarders." China, too, has experienced bad weather, dropping
production to a three-year low, prompting the Chinese to
sell from stockpiled sources. Europe won't make up the shortfall, because the 25-member
European Union must comply with a recent edict from the
World Trade Organization limiting exports of sugar. It's
absurd, but true. This, of course, delights sugar
producers. All of these factors are driving sugar to new highs and
putting the squeeze on companies like Kellogg's and Coca-
Cola. More than one-fifth of all sugar consumption is in
the factories of cereal makers and bakers. Kellogg's has
already shaved off a few cents from its earnings
projections. Hershey's, too, already raised its prices on
non-chocolate candies like Twizzlers and Jolly Ranchers. According to Deutsche Bank Securities: "If conditions
remain as tight as our industry sources suggest, some
refiners may not have sufficient raw cane to process and
packaged food companies may not have enough sweeteners to
produce product."' Ah, the refineries. The sugar refineries are busy. In fact,
most are running at full capacity. After years of listless
performances, sugar stocks are hot. In April 2005, I
recommended shares of a small, sleepy sugar refinery,
Imperial Sugar Co. (NASDAQ: IPSY). With roots going back to
1843, it is one of the oldest companies in Texas. It was a cheap stock, trading for less than 9 times
earnings. Plus, the company had a strong financial
condition. It had lots of cash, nearly $4 per share. For
what was then a $14 stock, that was quite a bit. Imperial
had virtually no debt. On an enterprise-value basis, it was
trading for less than 3 times its trailing EBITDA. Insiders
were buying, too. Over the six months prior to my
recommendation, about 11 insiders bought $564,000 worth of
stock. It was trading for only 80% of net tangible asset
value. Incredibly, even though the stock has tripled over the last
12 months, it still sells for less than 6 times the
company's estimated earnings for 2006. In other words,
Imperial's profit growth is outpacing its share price
gains. I always feel nervous about holding a stock that's
had such a big run. But if Rogers is right, Imperial might
keep running for a good, long while. [Joel's Note: You can certainly do well by painstakingly
analyzing the value of a company and snatching it up for a
steal. Of course, some prefer to go with the big picture
style of investing, taking advantage of global trends. Now
you can reap the benefits of both. Mr. Mayer's readers
boast stellar performing portfolio's because he keeps them
in the know with regards to the macro moves AND shows them
the companies that are best positioned to bank the cash as
a result. Imperial Sugar is just one example...you might do
well to check out this little beauty too: The one that could get away:
http://www.agora-inc.com/reports/FST/EFSTFB06
--- Special ---
The ONLY Stock You Need to Own... This stock is seriously the ONLY stock you will need to own
over the next 10 years. In fact, it's looking to be the next Berkshire Hathaway.
Buffett already has over $300 million in this company...
it's one of the biggest in his portfolio, even though it's
hardly a household name! Find out how you too can get in on this amazing
opportunity! http://www.isecureonline.com/Reports/FST/EFSTG313/ ------------------------- 
| 
