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Sugar prices spike to 11-year high and could rise further due to extreme weather

Chocolate bars on show.

Orlando, Winter Park, Rocket Fizz Soda Pop & Sweet Store, chocolate bar show, Milky Approach and Snickers. (Picture by: Jeff Greenberg/Training Photographs/Common Photographs Group through Getty Photographs)

Costs for sugar spiked as rising demand was compounded by a deteriorating climate outlook — and analysts say there’s nonetheless room for costs to shoot increased.

Uncooked sugar futures in current days rose to 24 cents a pound and reaching an 11-year excessive.

“Sugar fundamentals are fairly bullish for the costs to stay elevated within the brief to medium time period,” mentioned Girish Chhimwal, a sugar analyst at S&P, citing climate dangers plaguing high sugar producers.

Rising prices may very well be handed on to shoppers within the type of pricier sweet.

“The rising worth of confectionary and sugar-based drinks will incorporate rising sugar values,” mentioned John Stansfield, a senior sugar analyst at commodity knowledge platform DNEXT.

Costs of processed foodstuff are rising globally, Stansfield added.

“In a bar of chocolate you have got milk, cocoa powder and many others. and these prices are additionally rising. Power and labor prices to make such items are additionally rising,” he mentioned.

Manufacturing issues

Staff put together jaggery, unrefined cane sugar, at a plant in Modinagar, Uttar Pradesh, India, on Thursday, Nov. 3, 2022. The All India Sugar Commerce Affiliation in early April trimmed its sugar manufacturing estimates for the crop yr beginning October 2022 to September 2023 by nearly 3%

Bloomberg | Bloomberg | Getty Photographs

Excessive climate might ‘take costs a lot increased’

“Costs ought to pattern in the direction of staying elevated within the 21 to 24 cents per pound vary,” S&P’s Chhimwal forecasts.

Whereas China might doubtlessly draw upon state reserves to alleviate the strain in international markets, Chhimwal cautions there are lots of elements that would drive costs increased.

“Nevertheless, the El Nino danger on Asian manufacturing outlook might far offset within the medium time period and take costs a lot increased,” Chhimwal cautioned.

In line with the Nationwide Oceanic and Atmospheric Administration, there’s a 62% likelihood of El Niño situations from Might to June.

Relying on the Asian monsoon rainfall, the sugar market might doubtlessly develop into “very unstable” and climate pushed within the medium time period, he added.

Rain in primary producer Brazil can also be slowing the beginning of harvest in April.

Residents taking a ship after flood attributable to heavy rainfall in Rio Branco, Brazil, March 30, 2023. Relying on the Asian monsoon rainfall, the sugar market might doubtlessly develop into “very unstable” and climate pushed within the medium time period, S&P mentioned.

Lucio Tavora | Xinhua Information Company | Getty Photographs

The sugarcane harvest in Brazil’s south-central area — which accounts for 90% of the nation’s manufacturing — runs from April to December and its yield can be a key gauge to watch, mentioned Fitch Options’ commodities analyst Matthew Biggin.

However “[sugar] costs are so excessive proper now that even when costs cool considerably when the Brazilian harvest hits the market, costs might nonetheless be thought-about elevated above historic ranges,” he mentioned.

One other issue pushing costs increased is OPEC’s current shock resolution to slash oil output by round 1.16 million barrels per day. That has inspired the diversion of sugarcane towards ethanol manufacturing and away from sugar provides, Fitch Options wrote in a report dated April 13.

“The OPEC resolution and the upturn in oil costs will seemingly preserve costs elevated,” Biggin additionally identified.

The push in the direction of elevated biofuel mandates will even place a ground underneath costs over the long run, Biggin mentioned.

Bitter capsule for some

As with increased meals costs, nations grappling with excessive ranges of meals insecurity shall be hardest hit by sugar worth spikes, mentioned S&P’s Chhimwal.

It will hit “notably onerous” in North African and Sub-Saharan African nations, the place sugar consumption and import demand are excessive, he mentioned.

“The common client is already seeing the affect of upper costs,” mentioned DNEXT’s Stansfield.