Covid-Recovery effects on Sugar Market
In order to make a small recap on the price, let’s remain the last price of the first bulletin. As we can see in the graph below, the 28th October the price was reaching 0.1379$ per pound. Today’s price is 0.1483$ per pound. We have forecasted that prices will fall down and comsumption as well. However, our predictions were wrong. In fact, prices tend to go up. But still we can see declines. Especially one decrease that can be explained by the US election on the 3rd November. In fact as we can see just after there is a substantial fall decrease. This is beacause of the market uncertanity due to the US election and also Trump’s reaction.
Sugar price in USD/pound
Source: https://www.fxempire.com/commodities/sugar
Let’s focus on Brazilian production
Brazil will increase sugar production by 11 million tonnes and exports will rise by slightly more than this. We can explain this important production by the fact that the economic crisis has had a very significant impact on the price of oil. In February, the price of oil fell to its lowest level since 2003. On November 19, the price of oil doubled since February, but it still remains relatively low.
The low price of oil has had a direct impact on sugar production. Becoming uncompetitive as a source of fuel, producers focused on sugar production, thus maintaining production at a high level.
Source : Point 3 NEW LMC_Prospects for the World Sugar Market_SMO 12 Nov 2020.ppt
Given that social and economic activities remain uncertain worldwide, this tendency of producers to focus on sugar production rather than ethanol production could continue for a few more months. For us, this trend can only change when the situation and the impact of COVID-19 is fully controlled by countries around the world.
Sugar price evolution in the coming months
For us, the price will continue to increase for various reasons:
- Weather condition: On Tuesday 17th November, there was a storm that turned into a major hurricane which hit the central America. As we know, this region is known for being the main worldwide sugar producer. That is why, this is going to have an important impact on future sugar harvest and therefore on the price.
- Situation in India: India is the second largest sugar producer. India’s food minister has said there will be no sugar export subsidies this year. According to some people, the lack of a subsidy could push the price up in the coming months as well. So, will Indian exports have a significant impact on the prices of the March 2021 ICE 11 contracts? (Bulletin 3?)
Lack of sugar: Currently, Brazil has sold all its production to China. As said before, its next harvest will be significantly reduced due to bad weather conditions. Also affected by the drought, Thailand’s sugar production should follow the same trend as Brazil’s production. In view of this situation, some producers might even turn to other crops that are more lucrative and less affected by external factors (e.g. soybean). The supply will therefore be less important for March 2021, which would explain the continuation of this upward price trend.
Source: Point 3 NEW LMC_Prospects for the World Sugar Market_SMO 12 Nov 2020.ppt
Recommendation
Previously, sugar production had increased, which had led to increased imports. This had an upward impact on the price of sugar. In the near future, we think that the prices will follow the seasonal pattern and continue to grow. However, due to the still uncertain situation regarding the COVID crisis and the consequences of the hurricane in Central America, prices have to be monitored on a daily basis in order to be protected against eventual inverse price movements.
References
Global sugar market waiting for India’s stand on 2020-21 export subsidy – The Economic Times, [no date]. [online]. [Viewed 18 November 2020]. Available from: https://economictimes.indiatimes.com/news/economy/agriculture/global-sugar-market-waiting-for-indias-stand-on-2020-21-export-subsidy/articleshow/78813137.cms?from=mdr
IDONIBOYE, Ibi, [no date]. How long can sugar maintain sweet exchange price position? [online]. [Viewed 19 November 2020]. Available from: https://www.mintecglobal.com/top-stories/how-long-can-sugar-maintain-sweet-exchange-price-position
Point 1_2 NEW Sugar presentation SMO 12 November 20.pdf, [no date]. .
Point 3 NEW LMC_Prospects for the World Sugar Market_SMO 12 Nov 2020.ppt, [no date]
QSL Weekly Market Update, [no date]. [online]. [Viewed 18 November 2020]. Available from: https://mailchi.mp/qsl/imvgg65mpt-1343698
Sugar: June quarter 2020 – Department of Agriculture, [no date]. [online]. [Viewed 19 November 2020]. Available from: https://www.agriculture.gov.au/abares/research-topics/agricultural-outlook/sugar
Sugar Price | FX Empire, [no date]. [online]. [Viewed 19 November 2020]. Available from: https://www.fxempire.com/commodities/sugar
sugar-market-situation_en.pdf, [no date]. [online]. [Viewed 17 November 2020]. Available from: https://ec.europa.eu/info/sites/info/files/food-farming-fisheries/farming/documents/sugar-market-situation_en.pdf
Why have sugar prices changed?, 2020. Ragus [online]. [Viewed 18November 2020]. Available from: https://www.ragus.co.uk/sugar-prices-changed-2020/