Sugar has not been a sweet investment over the past several years.

In September, the price of the sweetener hit a five-year low at $0.135 per pound, less than half the level the commodity was trading at in 2011, which was a three-decade high at above $0.30 per pound.

The bear market in sugar can clearly be seen in the price chart for the Teucrium Sugar (CANE), which invests in sugar futures contracts:

Conditions have improved since, however, and sugar is currently trading at about $0.1425 cents a pound.

The reason for the partial rebound is that the light at the end of a very long tunnel may finally be coming into view for sugar.

Sticky South America

One major positive factor pushing sugar up is Brazil’s re-imposition of a higher fuel tax on gasoline in the country.

The difference between now and the past is that Petrobras S.A.(PBR) said it’ll pass the tax onto consumers, instead of absorbing it. So now, this tax will have the effect of Brazilian drivers filling up their tanks with ethanol, not gasoline.

In Brazil, ethanol is produced from sugar (not corn like in the United States), so sugar usage is sure to climb. The country is the world’s top producer of this type of ethanol and also the globe’s top sugar producer.

In other words, more sugar used for fuel means less sugar available to the global market from Brazil for use as a sweetener.

But what about the overall supply/demand situation for sugar?

Powdered Forecasts

The situation here is improving, at least according to several reputable forecasters.

Australia-based Green Pool says the sugar market in 2015-2016 will face the first of what could be “several years” of an output shortfall. This follows five years of surpluses, which have pushed down sugar prices. The overall surplus during those years was about 30 million metric tons (mt).

Green Pool put the deficit for the next crop year at 5.02 million mt, with global consumption rising to 181.6 million mt.

One key worry on the output side for Green Pool is the very poor financial condition many sugar farmers and companies are in, particularly in Brazil and India – the two largest producers.

Largely in agreement with Green Pool is the London-based Platts Kingman.

Kingman also cited production woes, saying that world sugar output, at 177.1 million mt, will fall for the third year in a row.

It also said that in the 2015-2016 crop year, production will trail consumption by 5.25 million mt. That would be the biggest shortfall in six years.

Kingsman demand figures are almost exactly as Green Pool’s, showing a 1.7% annual increase.

So it’s all sitting sweet for the sugar bulls, right?

A Bitter Aftertaste

Not so fast… there are still persistent negative factors that will hold back any runaway bull market in sugar.

Many still question whether Brazil’s sugar output will really be dented much by the financial condition of its producers.

And Sucden Financial points to “the elephant in the room” for the worldwide sugar market – India

The country is expected to announce a renewal of an export subsidy on sugar. That $65-per-metric-ton subsidy will be a lifeline to its domestic industry, but a big negative for worldwide prices as sugar is dumped into the global market.

Until further clarity about this year’s upcoming crop comes into view, sugar prices are likely to go nowhere fast.

And the chase continues,

Tim Maverick