Stability, that is what the sugar quotation has known, just like that of many other commodities, but hardly in recent times. Just when there finally seemed to be some air on the heated market, the El Niño phenomenon is yet another impulse that is causing the market to fluctuate.
The sugar price on the futures market in both London and New York has been at an eleven-year high since April and has risen to this level for various reasons. Ultimately, it all has to do with the availability of the raw material, which has come under increasing pressure worldwide in recent months.
On the spot market in Europe, sugar is now traded at an average price of €812 per tonne, an increase of 82% compared to April 2022. If we look back to April 2020, the price was even lower at an average of €350 per tonne. The futures market lags somewhat behind the spot market, but gives a clear indication of what is going on and how big the impact is of various matters, such as the Brazilian sugar cane harvest.
Since the end of May, it finally seemed that the sugar market was in calmer waters due to the smooth and good Brazilian sugar cane harvest. Concerns about tighter supplies and the availability of sugar – especially in the short term – were partly alleviated. As the world's largest sugar exporter, the country has a major influence on the global availability and supplies of sugar. But just like in previous months, a price impulse came from another source, which increased the pressure again. Reports about the El Niño weather phenomenon last weekend turned the losses from earlier this month into a significant plus.
El Niño has officially started, the American meteorological institute NOAA said. The announcement saw the raw sugar contract on the New York futures market rise 4% to 25,48 cents per pound, while the price was also down 1% from where it opened. The white sugar contract in London rose slightly less rapidly by 3%, reaching $689 per tonne.
Influence of El Niño
The natural phenomenon often leads to extreme weather and higher temperatures, the effects of which are often strongest in December. For example, much more precipitation is predicted in the US in the fall and winter during an El Niño, and South America is experiencing more drought. The chance of drought is also much greater in Australia and Asia and these speculations are already reflected in the futures market.
The availability of sugar may therefore come under further pressure and countries that produce a lot, such as India, Thailand and of course Brazil, will export less. While the availability of sugar and stocks are already under pressure.
India, which left its sugar export quota at 6,1 million this year due to last year's meager sugar production, is now also taking measures against the weather phenomenon. Today (Monday, June 13), the Reuters news agency reported that the Indian government is considering allowing sugar exports only at the start of the new processing season, which starts on October 1. This means that the country will no longer export anything in the coming months, while there is a lot of demand for sugar. India does not want to run the risk of sugar becoming scarce and to prevent domestic prices from rising much.
Nordzucker sees a larger beet area
The fact that sugar production was disappointing last season is also evident from figures from the German sugar producer Nordzucker. The company announced last week that the 2022 sugar beet yield was a total of 10% lower due to disappointing yields. This created space in the production line, which they partly compensated with imported raw cane sugar. Although it is still early in the season, Nordzucker expects significantly higher sugar production by 2023 million tonnes for 16,6.
Nordzucker confirms that beet sowing in Europe is lower than in other years, but on the other hand sees a growth in the European area. While France would once again fall sharply as the largest beet grower in Europe this season. Their first forecast is a growth of 2,7% in the area, which results from an increase in cultivation in Poland, the UK, but also countries where beet cultivation is somewhat smaller. By multiplying this by the long-term average yield of the beets, you arrive at the volume of 16,6 million tons of sugar after sugar beet processing. However, the sugar producer has not included the current backlog due to later sowing in this prediction.