Your sugar fix could soon cost a lot more.
The price of raw sugar has surged to levels not seen in more than a decade after bad weather withered harvests from some of the world’s biggest producers. At the same time, demand remains strong as refined sugar is an important ingredient for baked goods, candy and soft drinks, while sugar cane is used to produce ethanol fuel.
In recent weeks, the raw sugar-cane futures contract—the international benchmark—for delivery in May, surged to more than 27 cents a pound, the highest level since October 2011. On Thursday, the futures contract for July delivery closed just above 26 cents a pound in New York. Refined sugar prices are also rising, which could feed into higher retail prices for goods in grocery stores.
“We’ve gone from an expected sugar surplus this year to no surplus,” said Frank Jenkins, president of JSG Commodities, an independent broker specializing in sugar, coffee and cocoa.
Just a few months ago, Jenkins was expecting sugar production to outstrip demand, with surplus estimates ranging from four million to six million metric tons. “Due to crop losses in India, China, the European Union, Thailand, and Mexico, those estimates have declined to essentially an even balance sheet, so no real surplus to speak of,” he said.
Last year, vast swaths of the planet—from North America to Europe and Asia—were parched from extreme heat and drought. The weather affected crop yields across the sugar-producing regions.
“Adverse weather has become much more of a problem for all agricultural products, including sugar,” said Robin Shaw, an analyst at brokerage Marex. “The real enemy of sugar is a drought. Sugar absorbs a lot of moisture and there have been more droughts around the world.”
Shaw said demand for sugar is likely to outstrip production by six million to seven million metric tons over the next three years. He had previously expected a surplus of about four million metric tons this year.
While bad weather is one factor, another is the effect that Russia’s invasion of Ukraine had on fertilizer prices.
“It’s a perfect storm of weather events all around the world and then you throw in potential yield reductions due to high fertilizer prices over the last couple of years, and that’s not helped the sugar market,” said John Stansfield, senior sugar analyst at DNEXT Intelligence, a commodities consulting firm.
Sugar cane and sugar beets are grown around the world and processed into refined sugar. About 80% of global sugar production comes from sugar cane, according to the International Sugar Organization (ISO), while 20% is from beets.
The biggest sugar producers are Brazil and India, followed by the European Union and Thailand, said Peter de Klerk, senior economist at ISO.
In early April, the All India Sugar Trade Association trimmed its sugar production estimates by nearly 3% for the crop year spanning October 2022 to September 2023. While too little rainfall is a problem for growing crops, too much rainfall can hamper harvesting. The association cited unseasonal rainfall in Maharashtra, which accounts for more than one third of the country’s sugar output.
Brazil’s dominance in sugar production has also been a boon for biofuels: About half of its sugar cane crop is processed into ethanol. India has also been ramping up its ethanol industry and diverting more of its cane to make ethanol rather than sugar. “That is essentially reducing the production of sugar,” said Stansfield.
One factor that could affect sugar supply in coming months is the output from the No. 1 producer, which started harvesting sugar cane in April. “We’re just starting the Brazilian harvest, which looks fantastic,” said Jenkins. “But the market is walking on eggshells with every crop report that comes out of Brazil and looking for any signs of trouble.” There is also a lot of port congestion in Brazil, and sugar exports compete with soybeans “and that’s created some additional tension in the market,” he said.
Another factor that could weigh on sugar production is the global weather pattern dubbed El Niño. The most recent El Niño event during 2015 and 2016 brought lower-than-normal rainfall in Southeast Asia and a drier monsoon season in India.
Write to Lauren Foster at lauren.foster@barrons.com
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