Shortage of sugar sees global price climb higher

May 16, 2016 at 4:13 PM

A realisation of a global sugar deficit, coupled with political turmoil in Brazil, has seen the sweet commodity continue to rally in world trade.

Overnight, the July supply contract for raw sugar closed at 16.98 US cents a pound, down slightly from its peak during trade of 17 cents.

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AUDIO: Sugar analyst Tom McNeill says a global sugar shortage is driving price growth (ABC Rural)


Sugar has been one of the best performing commodities this year, with the price rise largely attributed to a significant supply shortage.

"We're in a deficit year after five years of surplus," said analyst Tom McNeill, from Green Pool Commodities.

"Production is about 8.6 million tonnes below demand."

Political upheaval in Brazil, the world's largest sugar-producing country, has also been a key factor in the price volatility this year.

Brazilian president Dilma Rousseff was suspendedovernight and faces impeachment over accusations she broke budget accounting rules.

With the country in recession, the vote to remove Ms Rousseff has been welcomed by currency traders.

"That's seen to have given the Real, the currency, upward movement and it also gives some upside to the sugar price," Mr McNeill said.

"The ceiling has always been created by the level at which Brazilian producers will hedge their crop.

"And that's where the currency and the politics comes into it."

Mr McNeill suggested a further appreciation in the Real would help to drive continued price rises.

More money for Australian growers

After years of relatively poor returns, the global price movement is news Australian sugar producers have been longing for.

The current indicative price for the 2016 harvest pool is around $520 per tonne, a massive increase on the 2015 pool which yielded $383 per tonne.

"We haven't seen these levels for five, six, seven years, so it's actually boosting the potential of the industry to earn income," Mr McNeill said.

A depreciation in the value of the Australian dollar since late April has also helped boost prices for local millers and cane growers.

Australia is the third-largest supplier of raw sugar in the world, with production valued at more than $2 billion.

Volatility the name of the game

Dry growing conditions in Thailand and India have added to the global production shortfall, and traders are trying to predict what a potential shift to a La Nina weather pattern could mean for crops later in the year.

Mr McNeill said speculators and hedge funds had also played a more active role in the sugar market recently, retreating from other commodities.

"I think we'll continue to see a lot of volatility ... we'll see some lower prices, some higher prices," he said.

"But I suspect once this deficit hits towards the end of this year, early next year, that's possibly when the market will peak, and I wouldn't hazard a guess at where that will be."