Personal Finance

Corn, Not Sugar, Offers Sweet Returns: Analyst

Geraldine Tan|Assistant Producer, CNBC Asia Pacific

Corn and sugar prices may have rallied on Tuesday, but for investors looking to profit from an agricultural trade, one analyst is putting his money in corn, over sugar.

Matt Rourke

Avtar Sandu, senior manager, Asian commodities at Phillip Futures, says rising demand and tight supplies will continue to support corn prices.

“Corn is particularly in an interesting stage, because it’s the growing area, growing time in the U.S. itself, and what we are looking at is very tight stocks and so whenever inventory figures do come up and there is a drawdown on the stocks and prices is fairly up,” said Sandu.

Corn for December delivery rose 4 percent to settle at $6.58 a bushel, the highest price this month, after the U.S. government released stockpile estimates which were lower than expected.

Sandu has an $8 a bushel price target on the commodity by the end of this year. The uncertainty over Europe and U.S. debt problems could result in a short-term pullback for corn futures, he adds, down to around the $6.20 level which could be a good entry point for traders.

"Buy on the dips for corn,” he said. “It is not only the specs (speculators) that are actually looking at it, it is also countries that actually need corn - China has become a net importer of corn from a net exporter.”

While he expects continued demand for sugar, particularly from the rapidly expanding Indian and Chinese economies, he does not think sugar will bring sweet returns.

Sugar futures surged 5 percent in Tuesday’s trade, hurt by news of shrinking crops in Brazil, which is the world's biggest producer and exporter of cane sugar.

"We do have a short-term problem in sugar, but in the long term, we do see sugar prices going down because we have had good harvest in India, as well as in Thailand," explained Sandu. (Watch the interview here.)

He sees world sugar production to increasing to 5.8 percent in the 2010/2011 season, adding that early estimates show a possibility of a big sugar production surplus in 2011/2012.