Sugar: Not So Sweet

Click here to follow ZeroHedge in Real-time on FinancialJuice

Sugar is like a heroin addiction. The effects are bingeing, withdrawal and craving or cross-sensitization. But, you don’t just have to literally eat it to get the effect of the kick that it provides. Sugar is hot property right now and the prices are rising and that’s because there is going to be a fall in production for the first time in five years this year and it’s all down to the weather. Oh! I can hear the scare-mongers voicing off about the planet, doom, gloom and global-warming, citing the Brits that are water-logged up to their armpits. Sugar hasn’t increased as much for the past five months and yesterday raw sugar rose by 4.1%, reaching 17.41 cents per pound.

Sugar has gone up and down over the years as with any commodity, but in October 1974 it reached the all-time high of 64 cents per pound. The opposite end of the spectrum was when it fell to just 2 cents per pound in the 1960s. Today, it’s Brazil that is the largest world producer and it’s sugar-based ethanol that has managed to maintain prices of sugar over the past 8 years. The world’s (sugar) eggs are all in one basket these days as Brazil accounts for 80% of world production. World production stands at approximately 23.8 million hectares of sugarcane and a harvest of 1.69 billion tons. After Brazil the top producers are India, China, Thailand and Pakistan.

But, the dire weather conditions in Brazil over the past few months have meant that the country is now being rationed on water supplies in 11 states. Crops have been wiped out and there are 6 million people that are suffering directly from the consequences of the adverse seasonal conditions.

The International Sugar Organization is now warning that sugar will see its output fall this year for the first time in half a decade. Supply will be disrupted and that means that prices will rise. According to data from theCommodities Futures Trading Commission investors cut net short positions by 22% last week. Prices may come back to around 19 cents per pound this year at the end of the year when supply and demand have come back into equilibrium. Until then, it is the rise in prices that will be foreseen due to a lack of output.

Some might see the saving grace of the sugar losses with regard to the output falling. Sugar cane has the highest toll on biodiversity according to some experts, destroying the soil, the water and creating air pollution. The habitat is destroyed to make way for the planting of sugar cane and there is extensive irrigation and use of chemical pesticides, routinely discharged into the watertable. Or perhaps it will just lead to greater destruction as the farmers scramble to produce more to fill the shortfall in production. The world has gone mad on sugar and there is a growing appetite for it.

• At the end of 2013 Chinese imports of sugar soared by 20%. India consumes the most sugar in the world and is closely followed by China, importing 709, 873 metric tons. 
• China has increased by 109% its imports in comparison with 2012. 
• There are 40 million sugar farmers in China at the moment and the government is largely responsible for importing so much to support them. 
• High prices on the domestic sugar market have meant that importers have increased the quantities they are buying from the global market.

The International Sugar Organization shows that the price of sugar yesterday stood at 17.62 cts/lb for the daily price, 16.36 cts/lb for the last 15-day average and a white-sugar price index (average of the close of the quotes for the first two future positions of White Sugar Contract in the UK) of $479.65 per ton or 21.76 cts/lb.

Originally posted: Sugar: Not So Sweet

Average:

Your rating: None