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)
Sugar prices soared as growing demand was compounded by a deteriorating weather outlook – and analysts say there is still room for prices to rise.
Raw sugar futures have risen in recent days to 24 cents a pound and hit an 11-year high.
“Sugar fundamentals are bullish enough to keep prices high in the short to medium term,” said S&P sugar analyst Girish Chhimwal, citing weather risks plaguing major sugar producers.
Rising costs could be passed on to consumers in the form of more expensive candies.
“Rising prices for sugar-based confectionery and beverages will price in higher sugar values,” said John Stansfield, senior sugar analyst at commodities data platform DNEXT.
Prices for processed food products are rising globally, Stansfield added.
“In a chocolate bar you have milk, cocoa powder, etc. and those costs are also increasing. The energy and labor costs to make such products are also increasing,” said he declared.
Workers prepare jaggery, unrefined cane sugar, at a factory in Modinagar, Uttar Pradesh, India, Thursday, Nov. 3, 2022. In early April, the All India Sugar Trade Association cut its production estimates of sugar for the crop year beginning in October 2022 to September 2023 by almost 3%
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Severe weather could ‘push prices much higher’
“Prices should tend to stay high in the 21 to 24 cents per pound range,” S&P’s Chhimwal predicts.
While China could potentially tap into state reserves to relieve pressure on global markets, Chhimwal warns that many factors could push prices up.
“However, the risk of El Nino to the Asian production outlook could be more than offset in the medium term and drive prices much higher,” Chhimwal warned.
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 dependent on medium-term weather conditions, he added.
Rain at Brazil’s leading producer also slowed the start of the harvest in April.
Residents take a boat after flooding caused by heavy rains in Rio Branco, Brazil on March 30, 2023. Depending on the Asian monsoon rains, the sugar market could potentially become “very volatile” and dependent on weather conditions 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 indicator to watch, said analyst Matthew Biggin. raw materials at Fitch Solutions.
But “[sugar] prices are so high right now that even if prices drop significantly when the Brazilian crop hits the market, prices could still be considered high above historical levels,” he said.
Another factor pushing prices higher is OPEC’s recent surprise decision to cut oil production by around 1.16 million barrels per day. This encouraged the diversion of sugar cane into ethanol production and away from sugar supplies, Fitch Solutions wrote in a report dated April 13.
“OPEC’s decision and rising oil prices will likely keep prices high,” Biggin also pointed out.
The push for increased biofuel mandates will also put a floor under longer-term prices, Biggin said.
Bitter pill for some
As with rising food prices, countries struggling with high levels of food insecurity will be hardest hit by sugar price spikes, S&P’s Chhimwal said.
This will hit “particularly hard” countries in North Africa and sub-Saharan Africa, 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.