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.