Like oil, sugar is an international commodity. Unlike oil, sugar is an agricultural crop dependent on the weather. This year has seen droughts in some parts of the world and wetter than normal weather in other parts of the world where sugar is grown. Both extremes affect the growth of sugar cane.
Here are some reports from various sugar-growing countries:
- India is both the largest exporter and importer of sugar. This year India will be an importer of sugar. India's inventories will fall 50% to 4.54 million tons, equal to three months consumption. Reports from farmers indicate that plants are only one foot high compared with normal growth of five feet. Rainfall was 64% below normal in the growing regions. To fill the gap, the Indian government is extending duty free imports.
- India, the biggest consumer had the driest period on 83 years.
- Brazil is the other major sugar cane producer. This year Brazil was expected to have a record crop. However, heavy rains have prevented tractors from harvesting the sugar cane. Moisture also leaches sucrose from plants.
- Global demand will exceed supply by about 5 million tons.
- Mexico, normally the biggest exporter to the U.S. has set an import quota of 393,000 tons until December. Mexico forecasts an 11% drop in production to 4.9 million tons.
- A weak U.S. dollar is also a factor in rising sugar prices.
A combination of these factors is driving the price of sugar higher on the futures markets. Prices have surged 76% this year with futures trading around 20 cents a pound. The number of 40 cent options has quintupled to 180,000 contracts. Sugar prices reached an all time high of 66 cents a pound in 1974. On one futures contract each 1 cent equals $1,120.
Hedge funds are loading up on long sugar contracts, looking for higher prices.
What does all of this mean? Well, for one thing expect to pay more for cereal, candy, and other products that use sugar. Keep in mind that sugar prices often follow the U.S. dollar. If the dollar strengthens here, there could be a temporary correction in the price swings of sugar.
Would you invest in sugar contracts or options?
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Reader Comments (Page 1 of 1)
8-10-2009 @ 4:35PM
Kenny Morris said...
Wow, I didn't realize that weather conditions (dry and wet) have caused problems with sugar crops and production. We don't need to see more increases in everyday foods such as sugars.
8-11-2009 @ 8:07AM
meriem said...
WELL THATS WESTERN CIVILIZATION THERE IN INDIA SO EXPECT IN THE NEXT 10 YEARS ANYTHING INDIA HAS TO OFFER THE WORLD WILL BE TAKEN OVER AN TRASHED LIKE THE REST OF WHAT THEY HAVE DONE TO OTHER PARTS OF THE WORLD THEY ARE LEAVING THE USA NOW AN LOOK AT THE CONDITION OF WHAT THEY HAVE DONE THEY ARE MOVING INTO INDIA THERE IS NOTHING WE CAN DO
8-11-2009 @ 10:29AM
Paula said...
Sugar is also grown right here in the USA, in Florida in a small town called South Bay. Sugar cane fields as far as the eye can see and processed right there at Dixie Crystals.
8-11-2009 @ 12:48PM
Jerry Deal said...
Sugar is also grown in the Lower Rio Grande Valley of Texas. There are sugar cane fields throughout the region.
It takes about 80 inches of water for these plants to do well. In the Valley, there is irrigation, so that is not usually a problem.
Jerry
8-12-2009 @ 9:17AM
Henry Ballard Sr. said...
This discussion has centered on the growth or limited growth of sugar, but not the causes. The climate has changedbecause of man's concerened only for one thing, money.
You, or I should we are being misdirected.
8-12-2009 @ 8:00PM
cabo79 said...
We have very high import duties on suger, Drop the import duties- problem solved for the American consumer. Not likely to happen. The only way to end this BS is to go to term limits. You cannot have a Free Society without rules, laws, a police force to catch the bad guys and prisons to put them in. The same goes for a Free Market capitalist society, you have to have rules, regulations, a police force and prisons to put the bad guys in. Our government is not maintaining a Free Market. Too many political contributions (pay-offs), it is obvious laws are bought and sold. Folks we need to correct this, it happens over and over. Our government is paralyzed by the need for pay-offs (political contributions). We need a major change to end this professional politician form of government. We need TERM LIMITS and real campaign finance reform. How about three 4 year terms for Congressmen, two 6 year terms for Senators and keep the current limit of two 4 year terms for President. The most anyone may serve in the Congress and Senate combined would be 14 years. We need an end to the professional politician form of government.
9-25-2009 @ 6:28AM
Prakash Pai said...
Hi Connie,
Thanks for the informative article. I am geetting into the sugar business :) By the way, the picture is of a Pineapple Plant, not Sugar Cane... you must be liking Pineapples!