Rumours: World sugar prices are going to…fall true?

Stock exchange news. At the beginning of 2011 the world sugar prices beat all records for the last 30 years. On February 2 the historic record of $0.3608 per 1 pound of sugar was fixed at commodity exchange ICE Futures U.S. And there is no surprise to it, as last three years were due to various reasons unsuccessful from the point of view of supplying sweet white production to the world market.

These reasons included bad weather conditions, a ban on exporting sugar from the country, issued by the government of one of the largest sugar exporters India, etc. At the same time, this year, for the first time during the last four years, the fall of world sugar prices is fixed.

Forecasts of sugar production, volume of transit stock, and world prices of sweet production accordingly are rather controversial. What is happening with the world sugar prices? What to expect in the present and the following marketing year, which starts in October?

Sugar is a unique product: its production is not connected with any monoculture. Sugar is received from thermophilic sugarcane and frost-resistant sugar beat; therefore, the sweet production is produced almost in all countries of the world.

The main sugar producers worldwide are:
• Brazil, whose stake in the world sugar production amounts to 23.7%;
• India (16.56%);
• European Union (9.38%).

This trinity of leaders is followed by China, Thailand, USA, Mexico, Russia, Australia, and Pakistan. All other countries of the world jointly produce almost as much sugar as Brazil – 23.07%.

At the same time, the stake of Brazil in sugar export worldwide amounts to almost one half. As a result, world prices to a great extent depend on the crop of sugarcane in this country of Latin America.

For investors: what is the influence of Brazil on the world sugar market?

Any information about news of Brazil, as experts of Masterforex-V Academy admit, can burst the market. When on July 14 there appeared information that sugar production in Brazil will be lower than initially forecast, namely, 38.5 mln. tons against the planned 40 mln. tons, sugar price has immediately risen by 24%.

So, what is the objective image of the current crop of sugarcane in Brazil?
• increasing sugar plantations. This year the country has increased the areas for sugarcane plantations;
• Unica’s forecast. According to the data of Brazilian Sugarcane Industry Association Unica, crop in central and southern states of the country has decreased by 25% in comparison with the equal period last year:
- Unica’s initially forecast of crop amounted to 568.5 mln. tons. However, according to the latest data of the experts of Macquarie investment bank, the crop is unlikely to reach even 540 mln. tons. Analytics of Datagro consulting company agree with them; their forecasts are even more pessimistic – only 536 mln. tons, which will be the lowest point for the last 10 years;
• increased demand in the country. During last two weeks of June in Brazil itself the cost of non-refined sugar, the stake of which amounts to two thirds of sweet production consumption in the country, has increased by 3.8%.

Nevertheless, at the end of May the volumes of the export of Brazilian sugar (2.37 mln. tons) have already exceeded the figures of the equal period last year by 6.8%. Sugar production at the end of May (4.7 mln. tons) is lower than one year ago; however, last year harvest started much earlier than this year. According to the forecast of International Sugar Organization, due to the shortage of supply from Brazil, the world’s surplus will be cut by 1 mln. tons.

All this indicates that Brazil will not fulfill “its undertaken obligations” on providing the world market with sugar.

Let us consider the world’s main exporters of sugar:



As observed on the chart, Brazil is the leader of sugar supply to the world market. A minor shortage of sugar supplies will not influence the position of Brazil in the TOP.

Forecasts: can sugar market... fail?

However, the rise of the world’s sugar prices is not to be expected, for other world producers of the sweet production overfulfill their obligations, as the experts of Masterforex-V Academy admit:
• sugar demand worldwide. Sugar consumption in the world is shortening, and experts do not expect the growth of demand for the sweet production either this, or the next marketing year. Thus, this year the world demand for sugar has dropped by 1.5%;
• main exporters. Thailand, being the last year’s second exporter in terms of volume, has rapidly raised sugar production. Instead of the expected production of 6.9 mln. tons of sugar, this Asian country will produce 10 mln. tons uphill. Indian importers of sugar are expecting that after a good crop the government will raise the limit of sugar export from the present 0.5 mln. tons to 1.5 mln. tons.
• situation in Ukraine and Russian Federation. This year Russia and Ukraine have increased the areas for sugar beat planting. So far the weather conditions are favourable, and these countries are expecting record harvests and corresponding volumes of sugar production, which will fully cover their domestic needs.
• producers’ forecasts. Due to favourable weather conditions, experts generally raise the expectations of this year’s sugar production in the majority of main countries-sugar producers (Russia, Ukraine, and China included). The increase by 8.4%, in comparison with the previous year, is expected, up to 182.2 mln. tons.

Consequently, the world market supply will exceed the demand by more than 10 mln. tons. Taking into consideration the fact that sugar deficit has lately been observed at the world market (25 mln. tons), then the increased sugar production will act against rising prices on this production. Excellent crops of sugarcane and sugar beat will not only drag sugar price down this year, but also enable to increase the transit stocks of sugar, which in its turn shall stabilize sugar price in the nearest future.

World sugar prices: shall a decline be expected?



As representatives of Forex Academy communities and Masterforex-V Exchange Trade inform, sugar prices in various world countries are the following:

It is observed from the table that sugar is most expensive in France, Switzerland, Finland, Japan, and Norway. It is cheapest in China, Moldavia, Ukraine, Russia, and Australia.

According to a questionnaire, held by Bloomberg agency, the absolute majority of analytics and brokers are expecting a decline of prices on raw sugar and refined sugar. Last week was finished at ICE Futures U.S. commodity exchange by the fall of October futures on sugar by 1.2%.

Traders of the Department of Stock Exchange Climate Analysis of Masterforex-V Academy suppose that during the second half-year of 2011 sugar prices will lower, but their high volatility will remain. During last 2 months future on sugar SB has been moving in the framework of ascending sloping channel. The bar of the passed week is formed in the form of pin amid the background to some extent higher than the previous one, which speaks about appearing of weakness.