“Sugarflation” Continues as Tight Global Supplies Push Prices Up to Record Levels

Published May 10, 2023

The 2022/23 sugar season has been impacted by tight global supplies in major producing countries such as India, driving sugar prices up significantly over the past four months. The Sugar #11 Jul '23 (SBN23) contract on the Intercontinental Exchange(ICE) closed at USD 0.26/lb on the 27th of April, up 29.3% MoM, the highest in over 11 years. The rise in sugar prices has also affected many sugar-based products such as candy, chewing gum, and sweets. According to the US Bureau of Labor Statistics, the consumer price index for candy and chewing gum rose to 186.64 in March, a 9.6% YoY increase and the highest on record. Sugar prices are expected to remain high on concerns that shifting weather patterns could undercut global sugar production.

Over the past four months, sugar prices have risen significantly due to tight global supplies in major producing countries such as India. The Sugar #11 Jul '23 (SBN23) contract on the Intercontinental Exchange(ICE) closed at USD 0.26/lb on the 27th of April, up 29.3% MoM, the highest in over 11 years. A similar trend was observed for the London White Sugar #5 Aug '23 (SWQ23) contract, which closed at USD 711.60 per mt on the 28th of April, up 18.2% MoM.

According to the Indian Sugar Mills Association (ISMA), Indian sugar production is expected to fall by 8.4% YoY from 35.8 million mt in MY 2021/22. This is the first significant decline in nearly a decade due to irregular rainfall in India's leading sugar-producing states: Uttar Pradesh, Maharashtra, and Karnataka. Consequently, the International Sugar Organization (ISO) increased its 2021/22 global sugar deficit estimate to -2.25 million mt from a November estimate of -1.67 million mt, lowering its 2022/23 sugar surplus estimate to 4.15 million mt from 6.19 million mt.

The rise in sugar prices has also affected many sugar-based products such as candy, chewing gum, and sweets. According to the US Bureau of Labor Statistics, the consumer price index for candy and chewing gum rose to 186.64 in March, a 9.6% YoY increase and the highest on record. Similarly, the consumer price index for sweets rose to 276.16 in March, 10% more than 251.10 in March 2022, also the highest on record.

Source: Tridge, US Bureau of Labor Statistics

With Brazil being the largest sugar producer in the world, another gauge to monitor is the sugarcane harvest that recently began in south-central Brazil - the main sugar-producing state in the country. However, price levels are considerably high right now, therefore, any downward pressure experienced when the Brazilian harvest hits the market would not be enough to scale down prices from their current historic levels.

Another bullish factor is the diversion of sugarcane toward ethanol production away from sugar supplies, which has been encouraged by the decision by the Organization of Petroleum Exporting Countries (OPEC) to reduce oil output by 1.16 million barrels per day. ISMA's recent Indian sugar production forecast of 32.8 million mt for MY 2022/23 had factored in a diversion of 4.5 million mt toward ethanol production, which may now increase following OPEC's recent decision.

Sugar prices are expected to remain high on concerns that shifting weather patterns could undercut global sugar production. According to the US Climate Prediction Center, the likelihood of an El Nino weather pattern emerging between August and October is 74%, which could bring heavy rains to Brazil and drought to India, negatively impacting production.