Another Sweet Quarter for Sugar
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Investors have been developing a taste for sugar over the past few months. Sugar futures have reached almost 12 cents per pound on the New York Board of Trade, the highest level since 1998, and have nearly doubled since the start of last year (although they are still 80% off their record peaks in inflation-adjusted terms).
One reason for this is that sugar has come to be viewed as a potential source of energy as well as of sweetness. The popularity of ethanol, which is produced from fermented sugar and is a substitute for petrol, has jumped, thanks to high oil and gas prices. In Brazil – the world’s biggest producer of sugar and ethanol – there has been “a virtual explosion” in domestic demand for flex-fuel vehicles, which can run on petrol or ethanol. In May, sales of flex-fuel cars outstripped conventional vehicle sales. Brazil now looks likely to devote more of its sugarcane crop to making ethanol, which will lower sugar supplies.
Sugar is also being bolstered by rising incomes in eastern Europe, Russia, China and India; as economies industrialise, the inhabitants tend to develop a sweet tooth. Chinese imports grew at an annual rate of 63% in August, and consumption should keep rising steadily. Although production in India is rising, demand continues to grow too. Sugar’s rally looks likely to endure for now: Ann Prendergast of Refco recently told the FT that “no one would bat an eyelid” if sugar reached 13 cents a pound by the end of the year. Barclays Capital’s fourth-quarter outlook is also bullish
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