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Sugar prices spike to 11-year high and could rise further due to extreme weather

Chocolate bars on show.

Orlando, Winter Park, Rocket Fizz Soda Pop & Sweet Store, chocolate bar show, Milky Means and Snickers. (Photograph by: Jeff Greenberg/Training Photos/Common Photos Group by way of Getty Photos)

Costs for sugar spiked as rising demand was compounded by a deteriorating climate outlook — and analysts say there’s nonetheless room for costs to shoot increased.

Uncooked sugar futures in latest days rose to 24 cents a pound and reaching an 11-year excessive.

“Sugar fundamentals are fairly bullish for the costs to stay elevated within the brief to medium time period,” mentioned Girish Chhimwal, a sugar analyst at S&P, citing climate dangers plaguing high sugar producers.

Rising prices could possibly be handed on to customers within the type of pricier sweet.

“The rising worth of confectionary and sugar-based drinks will incorporate rising sugar values,” mentioned John Stansfield, a senior sugar analyst at commodity information platform DNEXT.

Costs of processed foodstuff are rising globally, Stansfield added.

“In a bar of chocolate you may have milk, cocoa powder and so on. and these prices are additionally rising. Vitality and labor prices to make such items are additionally rising,” he mentioned.

Manufacturing issues

Employees put together jaggery, unrefined cane sugar, at a plant in Modinagar, Uttar Pradesh, India, on Thursday, Nov. 3, 2022. The All India Sugar Commerce Affiliation in early April trimmed its sugar manufacturing estimates for the crop yr beginning October 2022 to September 2023 by nearly 3%

Bloomberg | Bloomberg | Getty Photos

Excessive climate may ‘take costs a lot increased’

“Costs ought to pattern in the direction of staying elevated within the 21 to 24 cents per pound vary,” S&P’s Chhimwal forecasts.

Whereas China may probably draw upon state reserves to alleviate the strain in world markets, Chhimwal cautions there are numerous components that would drive costs increased.

“Nevertheless, the El Nino threat on Asian manufacturing outlook may far offset within the medium time period and take costs a lot increased,” Chhimwal cautioned.

In keeping with the Nationwide Oceanic and Atmospheric Administration, there’s a 62% probability of El Niño circumstances from Could to June.

Relying on the Asian monsoon rainfall, the sugar market may probably turn out to be “very risky” and climate pushed within the medium time period, he added.

Rain in primary producer Brazil can be slowing the beginning of harvest in April.

Residents taking a ship after flood brought on by heavy rainfall in Rio Branco, Brazil, March 30, 2023. Relying on the Asian monsoon rainfall, the sugar market may probably turn out to be “very risky” and climate pushed within the medium time period, S&P mentioned.

Lucio Tavora | Xinhua Information Company | Getty Photos

The sugarcane harvest in Brazil’s south-central area — which accounts for 90% of the nation’s manufacturing — runs from April to December and its yield could be a key gauge to watch, mentioned Fitch Options’ commodities analyst Matthew Biggin.

However “[sugar] costs are so excessive proper now that even when costs cool considerably when the Brazilian harvest hits the market, costs may nonetheless be thought-about elevated above historic ranges,” he mentioned.

One other issue pushing costs increased is OPEC’s latest shock choice to slash oil output by round 1.16 million barrels per day. That has inspired the diversion of sugarcane towards ethanol manufacturing and away from sugar provides, Fitch Options wrote in a report dated April 13.

“The OPEC choice and the upturn in oil costs will probably hold costs elevated,” Biggin additionally identified.

The push in the direction of elevated biofuel mandates will even place a ground below costs over the long term, Biggin mentioned.

Bitter tablet for some

As with increased meals costs, nations grappling with excessive ranges of meals insecurity will probably be hardest hit by sugar worth spikes, mentioned S&P’s Chhimwal.

It will hit “notably onerous” in North African and Sub-Saharan African nations, the place sugar consumption and import demand are excessive, he mentioned.

“The common client is already seeing the affect of upper costs,” mentioned DNEXT’s Stansfield.