Wednesday, December 12, 2012

Brazil flooding the world with cheap sugar

According to the International Food Information Council Foundation, 70% of Americans are trying to consume less sugar these days. This goal however is becoming more challenging, as sugar prices hit a 28-month low due to rising supplies.
WSJ: - Brazilian sugar and ethanol association Unica reported Monday that the cane-crush and sugar production in the second half of November in that region more than tripled from the same period a year ago. Usually sugar production eases in late November because most of the harvesting is done by then.

"I don't think anyone anticipated such a big swing at the tail end of the harvest," said Newedge analyst Michael McDougall. He said the greater supplies from Brazil are bearish for futures prices. 
Sugar futures (source: Barchart.com)

Why does Brazil matter so much to the sugar market? Because the nation is the largest sugar exporter in the world - by far.

Top sugar exporters (mm tons, source: Illovo Ltd)
Globally, sugar production has been running ahead of consumption (just recently), contributing to lower prices.
WSJ: - Globally, sugar production has been outstripping demand, with 6.2 million tons in excess for the marketing year that began Oct. 1, according to the International Sugar Organization. Extra production from Brazil could exacerbate the situation.
World sugar production (mm tons, source: Illovo Ltd)
World sugar consumption (mm tons, source: Illovo Ltd)

Unless the trend changes dramatically, there will be a supply of cheap sweets for some time to come. (Note: for those interested to see how cheap sugar helped some US companies, take a look at HSY.)
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As a side note, some would say that price is not necessarily a key determinant of sugar consumption in the US. The issue however is that it is the poor who are most vulnerable to sugar intake. For example the percentage of those without a high school diploma who have diabetes is consistently higher than those who have some higher education. And for those who do not have a high school education (and on average have lower incomes), sugar price (and price of products containing sugar) clearly matters. Cheaper sweets may result in higher consumption among the population in which almost one in 10 individuals is diabetic.

Age-Adjusted Percentage of Population with Diagnosed Diabetes by Education
(source: CDC)


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