Sugar prices have gone into a kind of acceleration. Global prices continue to rise amid concerns about tighter sugar supplies and lower production. The listing in London has now reached its highest point since 2011 and the European spot market is even higher. Is this a harbinger of a sugar crisis?
The London price for white sugar on the ICE futures market had risen sharply at the end of March due to concerns about tighter sugar supplies and disappointing production worldwide. The price record of $600 per tonne from 2016 was easily broken and the quotation is now at its highest point since 2011. The price level in recent weeks is at least $700 per tonne of sugar and appears to have a solid bottom. The spot market for sugar in Europe is even higher. This makes beet cultivation taste increasingly sweeter for beet growers.
The price of sugar has been slowly increasing since the beginning of 2021, but in the past year the price increase has accelerated. This is mainly due to tighter supplies and disappointing sugar production in Europe, but also worldwide. In Europe, sugar production in 2022/23 is estimated by the European Sugar Commission to be 'only' 15 million tons of sugar, as a result of meager sugar beet yields and shrinking acreage. In 2021/22 this was 16,3 million tonnes and is 8,7% lower than the five-year average. In Europe, rising sugar refining costs - due to increased natural gas prices - were also a factor.
Global market
Things are no different on the global market than in Europe. Sugar production in major production countries is disappointing and regular export and import flows are being disrupted as a result. Sugar production is disappointing in several Asian countries. India, the world's second largest sugar exporter after Brazil, still has its export quota at 6 million tons of sugar. Given the disappointing sugar cane harvest, that quota will most likely not be changed. For comparison: last season more than 11 million tons of sugar was exported. The Thai sugar cane harvest is also disappointing, just like that of Pakistan and smaller producers such as the Philippines.
In Brazil, the world's largest sugar exporter, the sugar cane harvest is picking up steam after some delays due to heavy rainfall. According to various forecasts from sugar group Czarnikow and the Brazilian Ministry of Agriculture (Conab), among others, the country expects the second largest sugar cane harvest ever. However, this brings little relief to the global sugar market because there is an increase in the conversion of sugar cane to ethanol instead of sugar. Higher taxes on fuel are the reason for this, resulting in more ethanol being blended into gasoline. In addition, there are logistical problems in the export ports at the moment.
European sugar stocks
The increased sugar prices on the world market are making Europe's sugar imports even more expensive. Sugar imports are expected to increase to at least 2 million tons this season. The USDA even estimates total imports at 3 million tons of sugar. The EU's sugar exports will also decline, the European Commission (EC) reported in the latest sugar report from early May. This is necessary, because sugar consumption in Europe amounts to approximately 17 million tons of sugar every year. According to the EC, sugar stocks have remained the same between December and February 2023, while they would normally increase due to sugar production from beets. As expected, this indicates disappointing production due to the lower beet yield.
Price drop is not obvious
If there is to be relief on the sugar market in the short term, this will really have to come from good Brazilian sugar production. However, analysts and various sugar traders state that the price will rise further in the near future. There is also a good chance that the weather phenomenon El Niño will occur this year and that will cause new speculation. In an El Niño weather type, South American countries experience more precipitation and parts of Southeast Asia become much drier. This can again lead to lower sugar cane production or lower quality in the slightly longer term.
Sugar trading group Czarnikow last week lowered its estimate for global sugar production for the upcoming 2023/24 season to 178,8 million tonnes. That is almost 2 million lower than the forecast in April last month. This means that production is almost equal to global sugar consumption, which at 178,9 million tonnes is the largest ever measured. It is a logical consequence of the reduced sugar production in various countries. Czarnikow cites El Niño weather and disappointing results in Asian countries as the biggest reason.
In Europe, sugar production will once again be below the five-year average due to a further shrinking area, but also in view of the delayed sowing of sugar beets. In several countries, sowing is complete later than normal. The notes of the Brussels sugar consultation and a report from the USDA show that if everything runs normally, sugar production can be estimated at 15,3 million tons of sugar. This means that, just like last year, more (expensive) sugar has to be imported and that the sweetener is scarcer, which will have an upward effect on prices.
However, production is still equal to consumption for the time being. For example, factories are still not closing because there is no more sugar available, as was the case in the United Kingdom in 2009. Prices are high, but not as high as was sometimes the case in the past (in 1980 and 1975, when sugar was even smuggled in some countries). It is far from obvious that the price of sugar will collapse in the short term, but there is certainly no question of a sugar crisis yet.