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Comment: Sugar price rises will continue in 2010

Comment: Sugar price rises will continue in 2010

Toby Cohen, analyst at Czarnikow Group, one of the UK’s oldest sugar traders, says the fundamental factors behind the doubling of the sugar price in 2009 (12c/lb to more than 25c/lb) will continue in 2010 as under-investment in production will continue to limit supply and put pressure on price.

In 2009, the sugar price reached a 28-year high as sugar crops were hit by poor weather conditions, which helped swing a world surplus to a deficit, taking spot futures values higher and creating a backwardation in the market. The fall in sugar production during the 2008/09 season of 20 million metric tons raw value (mtrv) is the largest ever recorded.
The extreme volatility in the sugar price this year highlighted how dependent the global sugar market has become on Brazil’s ability to expand sugar production and on the politics of India’s rural economy.

Looking forward then, although Czarnikow is expecting to see higher production in the 10/11 season, the production response to price hikes has been very limited. Most of the growth is simply due to expectations of normal weather conditions.
Russia and India have the potential to increase production in the short term. The former is expected to increase plantings over the forthcoming cycle, while in India the two-year crop cycle implies that a 50% recovery in production is possible over the next year. The bigger issue is competition for land between sugar and other commodities, which could work against sugar as rising food prices become a political issue.

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