In response to a recent question concerning some of the major factors influencing sugar prices a brief summary below outlines such factors.
Brazil is the world’s largest sugar producer and exporter with over 20% of production, over 40% of exports and an even greater share of raw sugar exports. This implies that Brazil will have a substantial influence on the world sugar market and sugar prices. Most of Brazil’s sugar is produced in the Center South region with Sao Paulo and Parana being the main producing states. Production costs in Brazil’s Center South are the lowest globally. Therefore the cost of producing sugar in Brazil and the Centre South region more specifically has direct implications for world sugar prices. World sugar prices denominated in US dollars and Center South sugar prices exhibit long-run co-integration. Naturally the Brazilian Real through its exchange rate with the US dollar also plays an important role in world sugar prices.
The most obvious influence on sugar prices is the impact of annual world supply and demand balances. These can be analysed through production minus consumption figures and the ratio of world sugar stocks to global consumption. Stocks can magnify or reduce the impact of a sugar surplus or deficit obtained from analysing production and consumption figures.
Another major factor affecting world sugar prices is the error that is made when estimating consumption and production figures. Once estimates are revised or final figures published the correction can have an impact on sugar prices. Figures showing a world sugar surplus that eventually after revision show a deficit may lead to a rise in prices to adjust for the error.
There are other short, medium and long-term influences on sugar prices. However, the above are probably a few of the most significant.
World production is expected to fall by 1.2% to 180.8 million tonnes, the first drop since 2008-2009, and demand expected to increase by 2.1% to 176.3 million tonnes. The surplus of 4.5 million tonnes is the main factor along with weak currencies in Brazil, India and Thailand likely to put downward pressure on sugar prices throughout the year.
Sugar from producer countries and that available for export is expected to increase to a record 57.1 million tonnes while import demand will decrease for a third consecutive year. World sugar stocks are expected to rise 0.5% to 74.4 million tonnes at the end of the 2013/14 season while reserves as a percentage of consumption will fall to 42.2% from 42.9%.
Peter Baron, Executive Director of the International Sugar Organization commented at the 19th International Asia Sugar Conference “Production is erratic, depending on the weather and rainfall, but consumption is relatively resilient.” Peter Baron added that growth was likely to average about 2% per annum which would produce demand of 201 million tonnes by 2020.
“There is bearish pressure on prices, at least until we see how this 13/14 season goes on. Personally, I don’t think prices will go below 15 cents,” ISO Executive Director Peter Baron stated on the sidelines of the International Asia Sugar Conference.
Sugar exports from India, whose currency has been Asia’s worst performing this year, may exceed 1 million tonnes during the 2013/14 season according to Narendra Murkumbi, Director of Shree Renuka Sugars. Indian sugar exports may exceed 300,000 tonnes this season according to the National Federation of Cooperative Sugar Factories.
Iraq’s state run food company has purchased 200,000 tonnes of white sugar which accounts for approximately 25% of its annual consumption. The purchase was made by the Foodstuffs Trading Company at a price in excess of $900 per tonne on a CIF basis. Iraq consumes approximately 800,000 tonnes annually.
Iraq’s two sugar mills have not produced sugar since the invasion of Iraq in 2003 which has led the state to purchase sugar through open tenders. The mills may be operational again in the near future. Recent protests in Iraq over the rising price of food have led the state to move to secure sugar supplies.