Factors behind rising sugar prices

Published 2021년 4월 9일

The Food and Agriculture Organization (FAO) reported that the sugar price index averaged 100.2 points in February 2021, a 6 points increase from January. Brazil and India are the key producers of sugar, followed by Thailand, China, and Pakistan. The confluence of unfavorable weather conditions and decreased production, especially from the European Union (EU) and Thailand, further exacerbated worries about supply shortages.

The global sugar market has been showing red alerts as sugar prices continuously rose in consecutive months from December 2020 and reached their highest level in February 2021. The Food and Agriculture Organization (FAO) reported that the sugar price index averaged 100.2 points in February 2021, a 6 points increase from January. Brazil and India are the key producers of sugar, followed by Thailand, China, and Pakistan. The confluence of unfavorable weather conditions and decreased production, especially from the European Union (EU) and Thailand, further exacerbated worries about supply shortages. Other key factors that stimulated rallying sugar prices are the rising demand for ethanol and container shortages.

Unstable Sugar Yield

Global sugar production has been on a declining trend starting the 2018/19 season. Fortunately, suppliers came into M.Y. 2020/21 with a relatively higher forecasted production level. Following through with the expectation, actual sugar production in Brazil during the 2020/21 season increased by 44.2%, reaching 38.19 million MT. Moreover, India also experienced an increase of 31% compared to the previous year. The 2020/21 season was a bountiful year for Brazil and India, however, the European Union (EU) and Thailand, on the other hand, experienced a catastrophic decline. Sugar production in the EU declined by 11%, which was mainly pulled down by a 34% decline in France’s production. Thailand also experienced a big dip in production to 6.9 million MT, lower than the already decade low forecast of 7.8 million MT.

Rising Demand for Ethanol

Sugar isn't the only commodity that utilizes sugarcane and sugarbeets. During every production season, suppliers choose a more lucrative option between sugar and ethanol, depending on whichever has a higher market price. At the onset of 2020, demand for energy fuels declined from economic halts brought by the pandemic but this downward trend reversed as vaccine roll-outs began and economies started to revive, causing a surge in demand for oil. This situation created an attractive market outlook for ethanol production. Additionally, Biden’s climate-driven administration is expected to further boost demand in the coming years. However, with a resurgence of Covid-19 infections around the world, the shares of ethanol and sugar remain uncertain.

Container Shortages

Indian exporters anticipated around a 12% decline in sugar export volume to 5 million MT in 2021 due to lagging logistic processes caused by container and worker shortages from Covid-19 restrictions. In an effort to contain the virus and ensure the safety of the workers, fewer laborers are able to support the logistics. The impact is similarly felt in Brazilian sugar export into Indonesia, one of its key importing countries, where high freight costs make its product less competitive.

Overall, tightened supply of sugar, especially from the EU and Thailand, coupled with rising ethanol prices and container shortages have fueled the rising sugar prices. With the economy still recovering from the pandemic, the forecasted and actual yield for M.Y. 2021/22 and dynamics of the logistics industry will play key roles in shaping what's to come in the sugar industry.