Prices were dragged down by the appreciated US dollar but boosted by the drought in Brazil, a report by Financial Market Research ING said. February recorded a five month low at US13.9 cents per pound (€12.45 cents per pound).
Speaking to Food Navigator senior commodity strategist Hamza Khan said current commodity market volatility continued to drive markets. “The global commodities market has continued a downward trend that started in mid-2014 with the sugar trade pressurised by the stronger US dollar and demands in China,” he said adding that the drop in sugar prices was low compared with the 50% drop in crude oil and iron ore prices.
A related report by Euromonitor International said commodity prices overall fell by 12% last month compared to the previous month.
Sugar production set to rise
Greater swings in sugar trade were expected from regions that were historically stable, including Europe and India, Khan added. While the Brazilian industry reeled under debt and drought issues, India increased its sugar production and the European Union opened up to trade, he said.
“Sugar production is set to rise. The industry needs to absorb higher sugar production by increasing the flexibility of supply to better serve growing demands in emerging markets like China.
“The increased demands will lead to increased volatility and better price transparency and lower short term prices,” he said and added that a closely balanced market was expected till September 2015 following a 3.5 tonne surplus in 2013/14.
“Given the flexibility of supply, we expect global sugar prices to recover towards US20 cents per pound (€17.9 cents) by the end of 2016,” said Khan.
Brazil industry reels under debt and drought
Last week, sugar producer Aralco filed for bankruptcy protection in a US court after the company's financial problems worsened during a drought that led to disappointing crop harvests.
“Rating downgrades suggest similar disruptions will follow for its peers,” said Khan.
The country’s woes began in 2011, when sugar prices hit a peak of US 36 cents per pound (€32 cents). Brazilian producers responded by investing heavily in expansion while taking on large debt burdens, only to see prices collapse by 59% since then.
According to the UNICA, nearly 47 sugar mills have closed and 70 have moved to bankruptcy protection since 2011.
“Current prices are also below the average cost of production at US20 cents per pound (€17 cents), implying that further cuts are likely, said Khan and added that Brazilian sugar exports are set to reduce from 26.2m tonnes last year to 23-24m tonnes this season.
India increases production
With a 15% increase in year on year production growth, the country could fill in any supply gaps by Brazil, said the ING report.
Last week, India’s cabinet approved a subsidy of 4,000 rupees (€58) a ton for the export of up to 1.4 million tons raw sugar. That is 19% more than the previous year.
EU opens up to trade
Sugar traders in the European Union (EU) are expected to make a big comeback to the market in 2017. After years of absence from the world sugar market, the EU sugar sector is expected to become a leading player after Brussels lifts sugar production quotas, eliminates the guaranteed price for sugar beet farmers and abolishes export limits.
“Reforms in the Common Agricultural Policy proposed in 2006 mean that farmers will be free to choose their own production level, depending upon economic factors. This will lead to wider swings in supply, given the ease of rotating between sugar beet and other crops,” said Khan.
In 2013/14 the EU produced 16m tonnes of sugar and net imports came to c.2m tonnes. Total imports came to 3.3m tonnes and total exports 1.4m tonnes.