Sugar rally. long-term deficits drive up prices and affect food inflation

Sugar dips a rally it took it to levels not seen in over a decade. Raw material moves in July 2012 highs it’s about after the climb 20% this year so far. Its growth is linked to poor harvests and the scarcity of this ingredient, just when demand is increasing, for example from China. A problem that does not seem to be punctual, because, according to experts, the sugar deficit will continue for a long time.

While commodity prices are falling globally after peaking in 2022, sugar breaks with the trend. S&P GSCI Index, which measures performance goods and is one of the market references, it has decreased by 2.5% since the beginning of the year. However, sugar is worth 24 cents per pound (each pound equals 0.45 kilograms) after its revaluation over the same period. The year began at 20 cents per pound.

“It’s a great commodity that has performed well this year,” sums up eToro Global Markets Strategist Ben Laidler. The analyst clarifies that the world’s second largest producer, India, recorded a lack of production Energy prices have affected the drought and, in addition, European sugar beet production. Also remember that demand is growing in the US and Asia. “Growth is in double digits for cocoa and sugar, and comes even as commodities across the board have been the weakest of all asset classes,” he notes.

But the production failed not only in India, but also in Thailand or China. In the first case, heavy rains prevented harvesting. Bad weather in China is also responsible for the government lowering its tonnage expectations for this year. “Basically a series production reviews have disappointed, sending the market into a more bullish tone,” the International Sugar Organization (ISO) said in a March report.

The Food and Agriculture Organization of the United Nations (FAO) also agrees with this forecast and links the rise in prices to capacity cuts in India, Thailand and China and warns: supply concerns affect the entire year. The poor outlook comes even as the world’s biggest producer, Brazil, has offset supply pressures thanks to increased use of sugar cane, a resource that has benefited from falling commodity prices.

Again, while the FAO records a decline in the overall food price index for the twelfth consecutive month (it had just reached its peak a year ago due to the invasion of Ukraine), the trend contrasts with sugar, whose individual indicator: return for the second month in a row.

He rally Sugar will mainly benefit Brazil, as its production conditions are favorable amid rising prices. However, food and beverage manufacturers will have to overcome its rise or, if not, pass it on to consumers. All this in a context when food prices continue to suppress inflation.

The situation could worsen for years, and the tension in this market will last for a long time, according to an analysis by investment firm Marex Spectron, which includes: The Wall Street Journal. His calculation is that claim will exceed six to seven million tons offer in the next three years. The total market is 200 million tons.

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