Press reports suggest that rain-induced crop problems in Brazil and falling output in India could lead to a tighter supply situation next year, resulting in higher sugar prices in the medium term. According to press reports in the face of escalating input costs and a weak dollar, global sugar prices have been below Brazilian production costs and this has led the industry to focus on ethanol production primarily for the domestic market.
Already benchmark raw futures have risen by 28% in 2008. ‘Increased demand for cane-based ethanol, reduced availability of sugar, tightening sugar supplies and increasing demand for the sweetener, notably from emerging economies’, have all contributed to improved prices. Czarnikow is predicting a ‘global deficit of 3.3 million tonnes of sugar in 2008/09, after a 9.4 million surplus in 2007/08’. Analysts argue ‘after two years of rising stocks and relatively low prices, the fundamental outlook for sugar is definitely changing’.
businessweek.com, August 15th 2008
http://www.businessweek.com/ap/financialnews/D92IR7700.htm
Reuters, August 18th 2008
http://www.forbes.com/reuters/feeds/reuters/2008/08/18/2008-08-18T105156Z_01_LI732788_RTRIDST_0_SUGAR-CZARNIKOW.html
The Economic Times (India), August 18th 2008
http://economictimes.indiatimes.com/Features/Investors_Guide/Global_sugar_supplies_to_tighten/rssarticleshow/3374861.cms
Higher world market prices coupled with a strengthening of the US dollar could begin to substantially erode the value of ACP preferences on the EU market. If from October 2009, EU market prices fell to 90% of the reference price, then given that this price is a cif price, if world market prices fob stood at 15 US cents/lb and the exchange rate rose to US$1.4:€1, then there would be little additional value to be gained from exporting to the EU market cif and exporting to the world market fob. In this context the recent decision by Guyana to focus on serving the EU market in a context of restricted sugar supplies, may make sense in the short term, but could pose problems in the longer term if regional markets are meanwhile lost to other more reliable suppliers.