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Feature Sugar

Factors to monitor in the sugar market

June 10, 2024 - Alex Jurvillier

It can be a challenge for a food company to grasp the market movement of sugar prices. Geopolitical events, crop expectations, and other factors influence sugar prices. What factors can you keep an eye on for more control over the market?

Brazil is the absolute leader in sugar production and will remain so in the upcoming market year 2024/25 according to the US Department of Agriculture USDA. The country is expected to produce 44 million tons of sugar. Reports on, for example, Brazilian production or sugarcane harvest have an impact on sugar price movements. Sugar prices dropped significantly in May, as reported by the World Food Organization, due to the strong start of the Brazilian harvest season.

It is important to pay attention to the difference between sugarcane and raw sugar. That is easily overlooked, but it is indeed a difference. Sugarcane is the plant itself, raw sugar is the product. Harvest figures for sugarcane are logically much higher than the figures for sugar production.

India
India is the third-largest sugar producer in the world. However, please note that the country currently has an export ban. India is the largest consumer of sugar, estimated at 32 million tons for the upcoming market year. The country maintains a sugar export quota to protect the domestic market, as reported by the USDA. Reports on the continuation of this quota or the possibility of India delaying its export ban can influence sugar prices.

Ethanol and crude oil
Two raw materials, sugar beets and sugarcane (not to be confused with raw sugar, the end product), are the raw materials of sugar. According to the European Commission, the global ratio is 20% sugar beets and 80% sugarcane. Additionally, 50% of the global amount of beet sugar comes from Europe. As the largest producer of raw sugar, Brazilian processors often face a dilemma. Should sugarcane be processed into sugar or ethanol? This decision is somewhat complex.

80% of the vehicle fleet in Brazil consists of flex fuel vehicles, as reported by market agency Czarnikow. These are cars designed to run on more than one type of fuel, such as gasoline, ethanol, or a blend of both. Fuels compete with each other. If the price of crude oil rises, gasoline prices generally rise as well. Ethanol may adjust to remain competitive with gasoline prices. This is one of the many factors that sugar mills in Brazil can anticipate. In general, more is produced of what yields the most.

Geopolitics
When unrest arises in a key transit area, caused by war or other conflicts that triggered the unrest, one or more trade flows can be affected. This can drive up sugar prices. This was the case this year in the Red Sea, where several conflicts occurred. The war between Russia and Ukraine is another example. Higher energy prices, for instance, can lead to increased production costs. Russia is also a major producer of sugar beets. News about the war can indirectly affect the sugar market.

And there are numerous other factors that can influence sugar prices. Not to mention weather phenomena like El Niño, which affect crop expectations and stimulate market sentiment. Or the exchange rate between the Brazilian real and the US dollar. Additionally, the decisions of sugar processors play a significant role and can be influenced by factors such as the price and availability of fertilizers, plant diseases, and global stocks. Each season and each harvest has its own strengths and weaknesses, as well as opportunities and threats from the market. The market must be closely monitored throughout the year.

Alex Jurvillier

Alex Jurvillier is a market specialist in sugar and cacao at DCA Market Intelligence. He also monitors the milk supply in the most important dairy countries and keeps an eye on developments in food.
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