Spend Matters welcomes this guest post from Loraine Hudson, market analyst at Mintec.
The U.S. ranks as the No. 1 sugar consumer in the world. With consumption equalling around 46 kilograms of sugar per person per year, that’s over 8.5 kilgrams more per person per year than the second largest consumer, Germany. With all of this sugar in the average American diet, the price of this sweet commodity is something to watch — especially now, as sugar prices have been rising since the start of the year and have reached a four-year high.
Global consumption of sugar has been rising at a faster rate than the population, meaning we are eating more sugar per person. Since 2000, the global population has risen by just under 21%, whereas the consumption of sugar has risen by 34%. In 2016/17, global sugar production will not been able to meet demand, causing concern over supply and rising prices.
Reduced planting in Brazil in 2015, combined with the onset of El Niño conditions (resulting in drier than normal conditions), reduced production in 2016 in both Brazil and India. The dry weather reduced the sugar content within the canes and hence lower yields were seen. Consequently, global production is forecast to fall by 3% year-over-year to 169.3 million tonnes. With consumption forecast to rise by 1% year-over-year to 173.6 million tonnes, the global market is expected to experience a supply deficit for the second consecutive season. However, ending stocks can absorb this deficit, following an oversupply in the market for five consecutive years to 2015/16. Lower supply, with currency effects thrown in, has led to a 40% price rise since the start of the year.
The Brazilian real has rallied 20% against the U.S. dollar since the start of 2016. This makes exports of sugar, which is mainly traded in dollars, less attractive in the local currency, resulting in Brazilian farmers holding onto their stocks rather than selling it — causing a temporary shortage of supply. As Brazil is one of the major exporters of sugar to the U.S., and the largest exporter globally, changes in the real affect global prices.
Looking forward, we can expect sugar prices to remain high for the time being. Furthermore, with the possibility of La Niña replacing El Niño toward the end of the year, which can lead to heavier monsoons in India and drier than normal conditions in Brazil, the effects of this phenomenon could see production continue to decline next year.