Sugar Cost Management: Prices Falling Steadily

Spend Matters welcomes a guest post from James Hutchings, at Mintec Ltd.

Despite the rise in use of corn syrup over the last 40 years, sugar remains the world's most commonly used sweetener. It is produced from sugar beet and sugar cane, with beet grown in temperate climates like those found in large parts of the US and EU, whilst cane is grown in tropical climates, including Florida and Hawaii (but predominately Brazil, India and Thailand).

World sugar prices have fallen steadily since the last spike in prices seen in summer 2011. World production in 2012/13 has been revised down by 2m tonnes from earlier estimates, but production is still forecast to be on a par with the record level seen in 2011/12 at 172.3m tonnes. These two successive record crops have replenished world stock levels and led world prices to drop to their lowest level in over two years. The drop in price is expected to lead to increased world consumption this season, which is forecast up 2% to 162.8m tonnes.

In Brazil, the world's leading producer and exporter of sugar, output is expected to rise in 2012/13 by 4% year-on-year to 37.5m tonnes. Sugar yields last season were affected by harsh June frosts and an aging sugarcane stock. This season, however, an increased rate of sugarcane renewal is expected to help boost production and if this rate of renewal is continued then it is likely to lead to continued production increases in the coming years.

US production is estimated at 8m tonnes, up 4% from last season with both cane and beet sugar production up. If realized, this would be the highest production level since 1999/2000. Consumption is also expected to be up and will reach a record 10.3m tonnes with Mexico expected to remain the largest supplier.

Sugar remains one of the most protected commodity markets in the world with both the US and EU keen to defend local producers through the use of subsidies, import restrictions and tariffs. This means world sugar prices can only have a limited effect on domestic prices, but given the trend in pricing seen over the last 18 months, we can hope for a slightly sweeter Christmas this year.

- James Hutchings, Mintec Ltd.

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