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World sugar trends

31 December 2006

Bloomberg carried a report on November 21st 2006 citing USDA sources warning of a 7% expansion in global sugar production in 2007, mainly as a result of increased output in Brazil and India. Production is expected to reach 155.2 million tonnes, up 10.5 million from the previous year. Consumption is forecast at 146 million tonnes up 3.2 million tonnes on the previous year. Sugar futures for March delivery fell marginally to 11.48 cents/lb, bringing the fall in world sugar prices over 2006 to 22%. Similar trends are evident in the WABCG FlashMarket review of the sugar market.

Expanding Brazilian ethanol production however is expected to support a rise in the sugar price to around 13.5 cents/lb.

Editorial comment

The pending global expansion of ethanol production, if sustained by high oil prices, could support world market prices, thus easing the industry-wide revenue losses arising from EU sugar-sector reform in those non-LDC sugar-exporting countries with a high exposure to world-market priced sales. However, at the current euro-US dollar rate of exchange this would still leave the post-reform EU sugar market yielding a price premium of US$142 per tonne over the world market price. This highlights the importance for low-cost, non-LDC ACP sugar suppliers of securing expanded duty-free access to the EU market.


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