The prices of any commodity, be it rice, wheat or sugar depends upon two variables, namely the demand and the supply. Hence, factors influencing the demand or supply of a commodity like market conditions, weather patterns etc. also weigh heavily in price determination of a commodity.
For instance, unfavorable weather conditions like intense heat, drought etc. hamper the crop production and hence in such cases, the prices of agro-commodities witness a rise. Conversely, favorable weather conditions are known to support the crop production leading to price drop of the commodity and this seems to be the case with global sugar prices this time around.
As per data, July NY world sugar #11 (SBN23) closed 1.90 per cent lower and August London white sugar #5 (SWQ23) closed 1.35 per cent lower on Monday, 26th of June 2023 amid favorable Brazilian weather.
Favorable Brazilian Weather, Ongoing Sugar Harvest Behind Drop In Sugar Prices
Forecasts of favorable weather conditions in Brazil have led to a drop in sugar prices since last week. Also, the ongoing sugar harvest in Brazil is driving down global sugar prices.
Brazil’s domestic sugar production has also been in a strong position as compared to last year. Brazil’s domestic food supply and statistics agency, Conab on 26th of April 2023, forecasted Brazil’s sugar output to be 4.7 per cent higher in 2023/24 to stand at 38.9 million metric tonnes. Also, Unica’s report presented on 13th of June highlight a similar picture. According to Unica, Brazil’s sugar production through May was 37.7 per cent higher YoY and stood at 6.972 million metric tonnes (MMT).
El Nino Supporting Global Sugar Prices
As of now, El Nino remains the only factor supporting global sugar prices. El Nino is a weather pattern that brings heavy rains to Brazil and droughts to India and it has the potential to impact Brazil’s sugar production. The last time El Nino weather phenomenon tinkered with the production process was back in 2015 and 2016 and owing to the dryness it brought to the sugar crops, the prices witnessed a steep rise.
Authorities should be well-prepared to brace El Nino this year as well as on 8th of June 2023, the U.S. Climate Prediction Center made a statement that the sea surface temperatures across the equatorial Pacific Ocean had risen 0.5 degrees above normal and wind patterns have changed to an extent where El Nino criteria meets.
The Bottom Line
Global sugar prices are witnessing a sharp decline owing to forecasts of favorable Brazilian weather. The downfall has also received support from the ongoing sugar harvest in Brazil. The only factor supporting prices of the sweetener is the possibility of El Nino weather phenomenon later this year.
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