According to the experts of , the market of sugar is this year’s most unpredictable commodity market. In Feb 2011 sugar prices hit the 30-year high. Numerous analysts started predicting higher sugar prices in the 2011-2012 marketing year. However, in spring the global market of sugar collapsed but then suddenly reversed and started rallying once again. Roller coaster, so to say!
Sugar is a unique product to some extent as it can be made from 2 crops – sugarcane and sugar beet. These crops are cultivated in different climate zones. That is why poor harvests in one area can be compensated by abundant harvests in another.
Brazil is the world’s major exporter of sugar (over 50% of global supplies). It uses sugarcane as the primary product. This year Brazil’s harvest of sugarcane is expected to be poor, at least less abundant that expected.
How can Brazil’s poor harvest of sugar affect the global market? Will other sugar-exporting countries manage to make up for a possible decline in the Brazilian sugar exports?
Why is sugar market so volatile?
The experts of say that within the last 6 months the global market of sugar has been hyper-volatile:
· In May 2011 sugar prices declined down to $0.2 per pound ( $449,7 per ton) after hitting 30-year high in winter.
· In mid-June sugar gained in value 50% by reaching the price of $0,306 per pound ($ 645 per ton).
· In a couple of weeks there was another major price decline - the price of sugar hit the lowest level in 9 weeks – after UNICA (Brazil) reconsidered its forecast for the decline in domestic sugar production.
· In the second decade of July sugar gained 54% against May’s prices.
· As of July 29th the October sugar futures traded in London reached the level of $789 per ton. As of August 1st the October futures lost almost 4% declining down to $0,2992 per pound.
The experts of note that over the last 2 years the market of sugar has seen 5 major trends within the range of $ 0,13 - $ 0,36 per pound. Will sugar be able to break the all-time record set in 1980 ($ 0,448 per pound)? The experts say it is very unlikely.
What are the market perspectives?
According to the experts of , analysts are focused on Brazil’s future harvest and forecasts for it. However the data for other sugar-exporting regions say that Brazil’s insignificant (in terms of global market) export failure will be compensated.
· Over the last 2 years the Customs Union countries (Russia, Belarus, Kazakhstan) have increased their sown areas of sugar beet by 52%.
· The current favorable weather conditions in the CU states, Ukraine and China will probably give them rich harvests.
· This marketing year the reserves of sugar will hit an all-time record in the CU states. This is especially important for Russia, as last year it turned out to be the world’s biggest importer of Brazilian sugar.
· India, was one of the biggest importers over the recent years but managed to restore its production of sugar, which allowed the Indian government to approve the export of 5M tons of sugar.
· Earlier this year Thailand increased its production of sugar, which was unexpected for everyone. In 2010 it was the world’s 2nd largest exporter of sugar.
Therefore, according to the experts of , Brazil’s poor harvest will be compensated by other sugar-exporting countries. However, they say that the exports will be insufficient to replenish the constantly declining reserves around the world, which will keep world sugar prices volatile.
Sugar futures: market outlook.
Since May 2011 the sugar futures (SB) has been rallying within an upward sloping channel.
According to the Department of Market Sentiment Analysis, , the market starts showing signs of weakness. However, a change of the current market tendency can be considered only after the prices breaks and consolidates below the lower border of the sloping channel (the red arrows). While the upwards scenario (the green arrows) isn’t cancelled, there is a factor speaking in favor of it – seasonality. In May the futures of sugar starts rallying until the end of the year.
Market Leader and would appreciate it if you could participate in a survey. Please, visit the Academy’s forum and answer the question given below:
What to expect from the global market of sugar?
· A rally
· A decline
· Record-high volatility
· Your own opinion
