WORLD SUGAR MARKET
World sugar market…
World sugar production is approximately 180 million tonnes per annum. It is from either sugarcane or sugar beet. Sugar is a commodity trading in the global market. Thus far, total world exports are about 50 million tonnes on the traded market. Most sugar is used in the country of origin.
The sugar market is categorising into two distinct segments white or refined sugar and raw sugar. Almost 30 percent of the traded market is for refined sugar. Thus far, the traded market only makes up around 30 percent of total global production. Therefore, it is often referred to as being ‘residual’ in nature. Since the traded market is the residual market after domestic demands are met, the effect of global supply fluctuations is amplified. It is so when viewing in the context of the sugar quantities available for the trade market. So, this feature of the sugar market explains the significant price volatility.
Global sugar market
There are only a few major sugar producers and exporters. Therefore, the global sugar market is heavily concentrated. Brazil and Thailand dominate exports. The largest importers are China and Indonesia. Both of these importers are part of a regional import market in Asia. They are in a sugar consumption deficit. They consume more sugar than they produce. More importantly, consumption continues to grow strongly. Australia appears to have a geographic advantage in Asia. Hence, it enables to fetch premium prices in comparison to Brazil which is the world’s biggest exporter.
The actual global sugar production and consumption annually affects the world sugar price. Thus far, it affects the statistical forecasts for future years too. Analysis as to whether the global sugar market is expected to be in surplus or deficit has a significant bearing on market prices and sentiments.
Global consumption
Global consumption is rising by between 1 to 2 percent annually. It is due to population growth and per capita consumption growth. Thus far, per capita sugar consumption closely relates to annual incomes. Especially in developing countries where there is a steady rise in incomes.
Presently global production is much more volatile than global consumption. It is mostly affected by weather and price. So, long periods of supply shortages cause world stocks to decline. Thus, prices strengthen. This position causes a production response. Albeit delays because of the time required to plant cane. Then it goes into sugar production. Hence, it leads to a higher global sugar production and, consequently to the world market moving into a surplus position. It then results in a price decline. However, from the time the crop is planted, there is a lag of several years before sugar production.
Futures market
There is another sugar market known as the futures market. This is where sugar manufacturers, refiners, speculators, and food and beverage manufacturers normally trade the commodity on a financial exchange. It is for hedging or speculating sugar prices.
A futures contract allows for the physical delivery of raw sugar. It becomes the benchmark and the basis for the price risk management and physical trading of raw sugar throughout the world. However, these contracts may be used by parties who may not necessarily intend to physically trade sugar. For example, they may be speculators. In fact, the existence of the futures market provides a transparent platform to assess how all players in the world market judge the value of raw sugar. It allows for this assessment for up to 3 years forward. Thus far, raw sugar futures market provides a ‘price discovery’ platform.
