Chocolate bars on display.
Orlando, Winter Park, Rocket Fizz Soda Pop & Candy Shop, chocolate bar display, Milky Way and Snickers. (Photo by: Jeff Greenberg/Education Images/Universal Images Group via Getty Images)
Prices for sugar spiked as rising demand was compounded by a deteriorating weather outlook — and analysts say there’s still room for prices to shoot higher.
Raw sugar futures in recent days rose to 24 cents a pound and reaching an 11-year high.
“Sugar fundamentals are quite bullish for the prices to remain elevated in the short to medium term,” said Girish Chhimwal, a sugar analyst at S&P, citing weather risks plaguing top sugar producers.
Rising costs could be passed on to consumers in the form of pricier candy.
“The rising price of confectionary and sugar-based beverages will incorporate rising sugar values,” said John Stansfield, a senior sugar analyst at commodity data platform DNEXT.
Prices of processed foodstuff are rising globally, Stansfield added.
“In a bar of chocolate you have milk, cocoa powder etc. and these costs are also rising. Energy and labor costs to make such goods are also rising,” he said.
Production concerns
Workers prepare jaggery, unrefined cane sugar, at a plant in Modinagar, Uttar Pradesh, India, on Thursday, Nov. 3, 2022. The All India Sugar Trade Association in early April trimmed its sugar production estimates for the crop year starting October 2022 to September 2023 by almost 3%
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Extreme weather could ‘take prices much higher’
“Prices should trend towards staying elevated in the 21 to 24 cents per pound range,” S&P’s Chhimwal forecasts.
While China could potentially draw upon state reserves to relieve the pressure in global markets, Chhimwal cautions there are many factors that could drive prices higher.
“However, the El Nino risk on Asian production outlook could far offset in the medium term and take prices much higher,” Chhimwal cautioned.
According to the National Oceanic and Atmospheric Administration, there is a 62% chance of El Niño conditions from May to June.
Depending on the Asian monsoon rainfall, the sugar market could potentially become “very volatile” and weather driven in the medium term, he added.
Rain in number one producer Brazil is also slowing the start of harvest in April.
Residents taking a boat after flood caused by heavy rainfall in Rio Branco, Brazil, March 30, 2023. Depending on the Asian monsoon rainfall, the sugar market could potentially become “very volatile” and weather driven in the medium term, S&P said.
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The sugarcane harvest in Brazil’s south-central region — which accounts for 90% of the country’s production — runs from April to December and its yield would be a key gauge to monitor, said Fitch Solutions’ commodities analyst Matthew Biggin.
But “[sugar] prices are so high right now that even if prices cool substantially when the Brazilian harvest hits the market, prices could still be considered elevated above historical levels,” he said.
Another factor pushing prices higher is OPEC’s recent surprise decision to slash oil output by around 1.16 million barrels per day. That has encouraged the diversion of sugarcane toward ethanol production and away from sugar supplies, Fitch Solutions wrote in a report dated April 13.
“The OPEC decision and the upturn in oil prices will likely keep prices elevated,” Biggin also pointed out.
The push towards increased biofuel mandates will also place a floor under prices over the longer term, Biggin said.
Bitter pill for some
As with higher food prices, countries grappling with high levels of food insecurity will be hardest hit by sugar price spikes, said S&P’s Chhimwal.
This will hit “particularly hard” in North African and Sub-Saharan African countries, where sugar consumption and import demand are high, he said.
“The average consumer is already seeing the impact of higher prices,” said DNEXT’s Stansfield.