Value and Risk

Sugar value:

Sugar futures were in a steady downtrend during the first half of this year. Then, the market has consolidated for the last several months – trading between nine and eleven cents per pound.
Worldwide supplies of sugar are currently plentiful and that is the reason for the drop in prices this year. However, sugar now looks like a much cheaper component for the production of ethanol as many of the traditional grains have had substantial increases in price. This development should make the fundamentals look much better for sugar over the long-term.
Demand will likely increase for sugar-based ethanol as crude oil prices continue setting record highs. Brazil is the largest producer of sugar ethanol and it is likely their operations will continue to expand.
Technically, sugar futures have started to trend higher. With the supply and demand picture improving, the lows near 9 cents will likely hold. A break above 11 cents would look very positive.

Risk Factors:

Commodity trading is done in the form of futures and that throws up a huge potential for profit and loss as it involves predictions of the future and hence uncertainty and risk. Risk factors in commodity trading are similar to futures trading in equity markets.
A major difference is that the information availability on supply and demand cycles in commodity markets is not as robust and controlled as the equity market.
What are the factors that influence the commodity prices in the market?
The commodity market is driven by demand and supply factors and inventory, when it comes to perishable commodities such as agricultural products and high demand products such as crude oil. Like any market, the demand-supply equation influences the prices.
Variables like weather, social changes, government policies and global factors influence the balance.
What is the difference between directional trading and day trading?
The key difference between commodity markets and stock markets is the nature of products traded. Agricultural produce is unpredictable and seasonal. During harvesting season, the prices of these commodities is low as supply goes up. There are traders who use these patterns to trade in the commodity market, and this is termed directional trading.
Day trading in commodity markets is no different from day trading in the equity market, where positions are bought in the morning and squared off by the end of the day.
Does commodity speculation affect agricultural income in India?
The vision for the commodity market in India is to reduce information asymmetry and make a robust market available to the end producer or farmer. It is also expected to balance out price information and give the producer a better price and a platform to hedge.
The futures market will allow the farmer to see the upside of the price over two to three months and help him decide where to sell.