Commodities have taken a beating recently, amid news reports about a slowing global economy. However, there are two commodities that show consistently strong demand and are retaining their value fairly well: cocoa and sugar. I have found exchange-traded notes (ETNs) that offer an opportunity to buy each these cash crops.

Cocoa ETN

Cocoa, the main ingredient in chocolate, is a money-making comfort food. The iPath Dow Jones-UBS Cocoa ETN (NIB) is meant to replicate the Dow Jones-UBS Cocoa Subindex Total Return. This index reflects returns on a basket of futures contracts for cocoa. In other words, NIB trades contracts to receive cocoa at a specified time.

While commodities generally have fallen sharply in recent weeks, the trend may fizzle out. People still need to eat, the world’s middle-class population is growing and demand should remain fairly strong. One factor that hurt the price of cocoa recently is the end of a civil war in Cote d’Ivoire, a West African nation that produces about 40% of the world’s cocoa crop. Ultimately, a stable supply of much of the world’s cocoa crop is a good thing. Once cocoa prices firm up, conditions will ripen to give investors in cocoa a buying opportunity.

Recent good weather also has pulled down cocoa prices. Cocoa investors, including some who have proprietary radar stations in cocoa-producing nations, no longer fear a wetter-than-normal growing season. As a result, cocoa supply is not jeopardized right now. Of course, weather conditions can change. For now, cocoa prices have pulled back, so you may find a buying opportunity with NIB if you think the factors that are holding down cocoa prices will be short lived. In February, a ban of exports in Cote d’Ivoire pushed cocoa prices to a 30-year high. As that incident showed, cocoa prices can be volatile. 

Sugar ETN

On my recent trip to Hawaii, I observed former sugar cane fields that now are used to grow corn. This makes sense, since corn is used for ethanol and has higher profit margins than sugar. However, sugar actually makes more ethanol than corn and does so at a lower cost. Brazil, the world’s largest sugar producer, now uses half of its sugar for ethanol. Were it not for the U.S. government’s protection of corn-based ethanol, we’d probably run our cars with 10% of the sweet stuff in our gasoline. With U.S. production declining, and demand only going up, sugar may be worth buying as a commodity investment.

The iPath Dow Jones AIG Sugar TR Sub-Index ETN (SGG) is one way to invest in this commodity. SGG seeks to replicate, before fees and expenses, the Dow Jones-UBS Sugar Subindex Total Return. Like the Cocoa subindex discussed above, the sugar subindex tracks a basket of futures and options. SGG is trading just above its 50-day moving average, generally a bullish sign for a continued uptrend.

So, if you want to sweeten the returns of your portfolio, consider these two commodity ETNs.

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