Sugar will not look so sweet later this year
Jan 15, 2010
Print this article
Supply disruptions "can have a powerful impact" on agricultural prices, as 2009 showed us, says Deutsche Bank. Take sugar – an increasingly severe supply squeeze caused prices to double in 2009. Last week they hit a 29-year peak of just under 29 cents a pound.
Last year poor weather hampered harvests in Brazil and India, the leading producers, while demand for sugar-based ethanol in Brazil remained buoyant. So global inventories fell to almost 30% below the ten-year average last year – the lowest inventories by this measure of all major commodities, says Morgan Stanley.
There is now a shortage in Pakistan, Asia's third-largest consumer after China. Chinese stocks are dwindling fast, presaging a significant jump in imports this year. Sunny Verghese, CEO of food ingredients group Olam International, reckons prices can breach 30 cents, although dwindling stocks are mostly "in the price".
But price spikes in soft commodities eventually recede as low supplies encourage farmers to increase production in the next growing season, says David Fuller on Fullermoney.com. This "supply response" brought sugar's two massive 1970s bull runs to an end. Higher supplies from Brazil and Europe are likely in the second half of 2010, says Kona Hague of Macquarie Bank. "That's when I start getting quite bearish."
Related articles
-
By David Stevenson, Apr 23, 2012
-
By David Stevenson, Mar 12, 2012
FREE - MoneyWeek's daily investment email
Our free daily email, Money Morning, is an informative and enjoyable analysis of what's going on in the markets. Written by our Editor, John Stepek, and guest contributors.
Sign up FREE to Money Morning here.