Sugar

In the first half of 2002, sugar prices moved from about 8 cents per pound of raw sugar to under 5.5 cents by June 2002. In July prices began to firm up and in early December were over 7.8 cents. Prices then moved into a trading range as 2002 came to an end. The major fundamental reason for the decline in prices in the first half of 2002 was the expectation in the market that Brazil would have a large sugar cane crop that would lead to large production and exports of sugar. This drove prices lower on the New York Board of Trade to the point where most sugar producers could not cover the cost of production. Another factor causing prices to move lower was an anticipated increase in European Union beet sugar production. After a small crop in the 2001/02 season, the 2002/03 crop was expected to be larger. Both Brazil and the European Union are major sugar exporters. Another unsettling factor in the market was that China was producing more sugar. China is a major importer of sugar. On the consumption side, sluggish global economic growth meant that any increase in world consumption would likely be minimal.

The 2001/02 season was characterized by an increase in world production of sugar as well as an increase in global consumption. The U.S. Department of Agriculture reported that 2001/02 world sugar production was estimated to be 133.9 million metric tonnes, raw value, an increase of almost 3 percent from the 2000/01 season. One characteristic of the 2001/02 production season was that beet sugar production in the European Union declined by 12 percent to 16.2 million tonnes. This decline allowed refined sugar prices in the London market to maintain a wider premium to raw sugar prices in the New York market. India, a major sugar producer but minor exporter, saw production slip 1 percent to 20.3 million tonnes. China, a large producer of beet and cane sugar saw a production increase of 15 percent to 7.9 million tonnes. Despite the increase, imports of sugar increased 29 percent to 1.4 million tonnes. Brazil is the dominant producer and exporter of raw sugar. For the 2001/02 season, sugar production was 20.4 million tonnes, an increase of 19 percent from the previous season. Brazilian sugar exports soared 51 percent to 11.6 million tonnes. Thailand, a major producer of raw and refined sugar, had 2001/02 production of 6.4 million tonnes. This represented an increase of 25 percent from the previous season while exports of 4.3 million tonnes were up 26 percent from the prior year.

The decline in sugar prices from January 2002 to June 2002 reflected the market's expectation that the 2002/03 Brazilian sugar cane crop and resulting sugar crop would be large. A combination of excellent weather along with a decline in the Brazilian currency led to the likelihood that Brazil would be in a position to export a lot of sugar. The Brazilian sugar cane harvest starts in May. The U.S.D.A.'s November report on the world sugar market forecast world production at 138.8 million tonnes, an increase of 4.9 million tonnes or 3.7 percent from the 2001/02 season total of 133.9 million tonnes. Season beginning stocks were 34.1 million tonnes, down 7 percent from the previous year. The forecast indicated that production by the five largest exporters (Brazil, the E.U., Australia, Thailand and South Africa) would increase by 4.8 million tonnes while production in the two large importers (China and Russia) would increase 6.4 percent.

Brazil's 2002/03 season production was estimated at 22.7 million tonnes, an increase of 11.5 percent from the previous season. Brazil's exports were forecast to be 13.1 million tonnes, an increase of 13 percent from the previous season. Brazil also uses its sugar cane to produce alcohol. The government has been increasing the amount of alcohol in the gasoline-alcohol mix and it now stands at 25 percent. Alcohol use in motor vehicles is projected to increase which should mean that in the future more sugar cane could go into alcohol production.

Sugar production by the European Union in 2002/03 was forecast to be 17.8 million tonnes, an increase of 10 percent from 2001/02. Exports of sugar were estimated to be 5.8 million tonnes, up 38 percent from the previous season. South African sugar production was 2.8 million tonnes, an increase of 9 percent from the previous year while exports were projected at 1.3 million tonnes, up 9 percent. Australia's production of 5 million tonnes was up 9 percent while exports of 3.7 million tonnes were up 12 percent from the previous season. China's sugar production was seen at 8.4 million tonnes, up 7 percent from the prior season while Russian Federation production was 1.7 million tonnes, up 4 percent. Russia's imports of 4.5 million tonnes were forecast to fall 6 percent. The U.S. produces cane sugar in Florida, Texas, Louisiana and Hawaii while beet sugar is produces in the upper Midwest and Far West. U.S. sugar production in 2002/03 was forecast to be 7.5 million tonnes, an increase of 5 percent from 2001/02. Imports of sugar into the U.S. enter under tariff-rate quotas. For fiscal year 2003, imports of raw cane sugar into the U.S. are set at 1.12 million tonnes. The refined sugar tariff-rate quota is 37,000 tonnes.

World consumption of sugar in 2002/03 was forecast by the U.S.D.A. to be 133.5 million tonnes, an increase of 1 percent from the 2001/02 total of 132 million tonnes. Consumption of sugar is affected not only by the price of sugar but also by consumer tastes. Other sweeteners like high fructose corn syrup have made inroads into sugar consumption. U.S. 2002/03 sugar consumption is estimated at 8.9 million tonnes, down 5 percent from 2001/02.

Futures Markets

Sugar futures are traded on the Bolsa de Mercadorias & Futuros (BM&F), Kansai Commodities Exchange (KANEX), the Tokyo Grain Exchange (TGE), the London International Financial Futures and Options Exchange (LIFFE), and the CSCE Division of the New York Board of Trade (NYBOT). Options are traded on the BM&F, the TGE, the LIFFE and the NYBOT.

Excerpted from the CRB Commodity Yearbook. For more information on CRB products click here

Sugar

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