Spend Matters welcomes this guest post from Corrina Savage of Mintec.
Prices for some of our favorite treats have been rising. Cocoa is up 18% since the start of 2014, Arabica coffee is up 67% and even the healthy option, bananas, have risen 7%. Sugar prices have continued to fall globally from the highs seen in 2011 and have even recovered from the price peaks earlier in the year. However, the US as a protected market has also seen some steady price increases in sugar over the last 12 months. In August, the US continued to protect its boarders by introducing, in an import duty on Mexican sugar (as high as 17%). But why is the US introducing these duties?
Currently, world prices are down 4% since the start of 2014, and over 15% down since the start of 2013.
Earlier this year, world sugar prices increased due to growing anxieties that the Brazilian drought - the most severe seen in decades – would reduce production. Brazil is the world’s largest producer and exporter of sugar and so Brazilian production levels affect prices globally. Prices on the ICE peaked in May 2014, up 20% from the lows seen at the end of January. Forecasts for Brazilian sugar production in 2014/15 are down 3% y-o-y to 36.8m tonnes and yields are expected to fall an estimated 8% year-over-year.
The reduced production in 2014/15 will result in the level of ending stocks not increasing for the first time in 5 years. Abundant production in previous years has seen ending stocks climb year on year. At the end of the 2013/14 season, global ending stocks reached 45.5m tonnes, up 62% from stocks 5 years ago.
The drought eventually abated, but fears did not disappear completely and prices have not dropped to the levels seen in late January. Overall production is now not expected to change greatly year on year but the hot weather caused the sugar canes to be ready for harvest earlier than usual. This has raised a different issue - the sugar crush levels. In July the South-Central region sugar crush was up 11% to 203m tonnes, leading to a drop in sugar prices as the market speculated increased production throughout the year.
Overall the world price is low and will remain deflated thanks to ample stocks, the US price is supported – however, this does not stop the large multinational organisations finding creative and innovative ways of bring in “sweetened products.”