Sugar

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Commodities Portal

1 Overview
2 Pricing Structure
3 Supply
4 Demand
5 Price forecast
6 External References

[edit] Overview

Sugar (the word stems from the Sanskrit sharkara) consists of a class of edible crystalline substances including sucrose, lactose, and fructose. Human taste-buds interpret its flavor as sweet. Sugar as a basic food carbohydrate primarily comes from sugar cane and from sugar beet, but also appears in fruit, honey, sorghum, sugar maple (in maple syrup), and in many other sources.

More than 100 countries produce sugar, 78% of which is made from sugar cane grown primarily in the tropical and sub-tropical zones of the southern hemisphere, and the balance from sugar beet which is grown mainly in the temperate zones of the northern hemisphere. Generally, the costs of producing sugar from sugar cane are lower than those in respect of processing sugar beets. Currently 69% of the world’s sugar is consumed in the country of origin whilst the balance is traded on world markets.^[1]

[edit] Pricing Structure

For most of the late 1990s and early 2000s, sugar prices in the international markets remained in the range of US$200-250/MT. But since 2004, prices have firmed up and are currently at around US$450/MT. The price increase in the international markets has been caused by a host of factors, including thefollowing:

High crude oil prices, which have resulted in major exporters like Brazil diverting a substantial part oftheir cane output for manufacture of ethanol rather than sugar13.
Phase-out of subsidies by EU, which was earlier a major exporter despite having uncompetitive coststructures.
Increased consumption by developing countries, including India and China.
Lower crop because of adverse weather conditions in some major producing countries including India. With crude oil prices expected to remain high over the medium term, sugar prices too are likely to remain firm over the next two seasons at least.^[2]

Higher world market prices during the past two years provided the incentive amongst sugar producers worldwide to expand their cane and beet sugar crops. The resultant increased sugar availability has served to dampen world market prices which have fallen from US20 cents/lb in February 2006 to around US10 cents/lb at the end of March 2007.

[edit] Supply

Global sugar production in 2006/07 is estimated at 161 million tons, 80% of which is produced by the world's top ten sugar producers. The five largest exporters in 2006/07, Brazil, Thailand, Australia, SADC and Guatemala, are expected to supply approximately 80% of all world free market exports. South Africa is currently ranked as the eighth largest exporter to the world market. ^[3]

[edit] Demand

Global sugar consumption continues to increase by about 2% per annum, and in 2006/07 is expected to reach almost 154 million tons.

Long-term potential for consumption growth, particularly in Southern African countries, remains positive. Consumption growth in China has increased as a result of the bouyant economic conditions currently being experienced in that country. ^[4]

[edit] Price forecast

Production to rise, prices to fall World sugar production is forecast to rise by 5 per cent to around 153 million tonnes in 2005- 06, assuming that average seasonal conditions prevail in key producing countries. This forecast increase in production will be driven by expected higher output in Brazil, and a recovery in production in India and Thailand. In 2004-05, sugar production in Brazil is expected to be another record. However, the effect of this on world production and prices is likely to be largely offset by production shortfalls in other major producing countries, including Thailand and India. In Thailand, drought has adversely affected the area planted to cane and crop growth, leading to a forecast decline of 4 per cent in sugar production in 2004-05. In India, drought and a woolly aphid infestation in some cane growing areas are forecast to result in a production decline of 15 per cent in the year. World sugar production is forecast to be around 145 million tonnes in 2004-05, a rise of less than 1 per cent from the previous year. World sugar consumption is forecast to rise by 2 per cent to over 151 million tonnes in 2005- 06. Partly refl ecting recent signifi cant income growth, sugar consumption, and import demand, is forecast to increase in China. Import demand is also likely to rise in the Russian Federation as a result of an expected shortfall in domestic sugar availability. Refl ecting the higher forecast increase in production, world sugar stocks are expected to rise in 2005-06, placing downward pressures on world prices.