Sweetness in Price of Raw Sugar

If there was any commodity guaranteed to provide sweet profits for traders in the second half of 2009 it was sugar. Raw prices have more than doubled since mid-2009 to almost 30 cents per pound at the end of January, their highest level since 1981, reports Jessica Mead for London’s “City A.M.”

Like other commodities, sugar has since taken a bit of a caning, partly as a result of a stronger dollar. Traders are now asking whether this correction is the sign of further weakness ahead.

Understanding what has driven the sugar price is crucial for contracts if difference (CFDs) traders are to forecast where it is heading next. There were three stages to the rally in the second half of 2009 says Societe Generale’s Emmanuel Jayet. First, it emerged last spring that India, the second largest producer of sugar behind Brazil, had a disappointing crop; second, detrimental weather conditions in Brazil and India – too much rain in the former and not enough in the latter – increased the chances of another huge world sugar deficit; and finally, strong demand in Asian countries such as India and Pakistan sent raw sugar prices soaring.

Such a combination of drivers is unlikely to continue in its current form. Jayet says: “Thanks to current high prices, world sugar production is most likely to increase and the world sugar market will shift from deficit to surplus.”

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