On May 24th 2006 Bloomberg reported expectations that Brazil was about to expand sugar exports in response to a weaker real (-11% in one month) and high world market prices. World sugar production is expected to lag behind demand by 966,000 tonnes according to the ISO, but it is expected that expanding Brazilian production following a record crop will turn this situation around by the end of 2006. A 17% expansion of Brazilian sugar exports is expected before the end of the year. New York prices dropped 0.46 cents per lb or 2.8% to 16.6 cents per lb. Meanwhile Dow Jones Newswires reported concerns amongst Brazilian sugar traders over the withdrawal of portfolio managers from sugar trading, with consequent falls in the sugar price.
The World Association of Beet and Cane Growers (WABCG) reports sugar prices sliding, with prices for July supply down to 15.21cents per lb (US$335.2 per tonne) by the end of May, a level not seen since January 2006. White-sugar prices are showing a similar downward trend.
In terms of the broader perspective, WABCG highlights uncertainty regarding ‘market fundamentals’, with a doubling of the price since May 2005 inducing a strong supply response, with even Nigeria, which halted sugar production in 2001, re-entering production. Key factors influencing longer-term price trends identified by WABCG include:
- ongoing increases in the oil price;
- the development of ethanol-blending programmes in response to the high oil price;
- weather events;
- American ethanol-import policy;
- the decisions of fund holders;
- the rate of exchange between the Brazilian real and the US dollar.
Given these trends raw-sugar prices may well have peaked on the world market, with the question now being how much will they fall in the coming months and where they will stabilise.