Sugar prices continue to rise

by Ron Sterk
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KANSAS CITY — With supplies tight globally, refined sugar prices took another bounce last week with major beet and cane processors raising offer prices 3c a lb, to the highest level since Hurricane Katrina shut down Gulf cane refineries in 2005.

Bulk refined beet and cane sugar last week was offered nationally by most processors at 42c a lb, f.o.b., for spot through Dec. 31, 2010, delivery, although one company posted offers of 48c for spot delivery and 44c for other periods. Prices had been increased to 39c a lb by most processors only a couple of weeks earlier, and values have risen 9c, or 27%, since dipping to 33c in early May. In contrast, when Katrina hit in August 2005, bulk prices shot from 26c a lb in mid-August to 44c in mid-September, a gain of 69%.

Interestingly, current bulk refined sugar prices were near year-ago values. Last year prices rose in mid-August due to tight domestic supplies, and took another smaller bounce in early September as Hurricane Gustav threatened Gulf cane refineries and damaged cane fields in the region. Concern about damage to Gulf cane refineries was heightened by memories of Katrina and by the fact that the Imperial Sugar Co. refinery in Port Wentworth, Ga., still was far from operational. But Mexico was in the initial stages of shipping large quantities to the United States duty free under the North American Free Trade Agreement. About the same time, the U.S. Department of Agriculture increased import quotas, further adding to supply until the 2008 U.S. beet crop became available.

But the reason for this year’s pricing is far different, longer term and global in nature. The Imperial facility in Port Wentworth is up and running, albeit still at a reduced capacity, and domestic sugar supplies are tight but still available at offering levels. But supplies in Mexico have run low and that country is seeking, mostly unsuccessfully, to import sugar from the world market. Shipments from Mexico to the United States are forecast to drop dramatically in 2009-10 (October-September) as a result.

And the U.S.D.A. has made no change to import quotas for the current year, at least in part because there is no supply available to import at short notice.

Global sugar supplies are tight because India, the world’s largest sugar user and second largest producer, is experiencing a dramatic shortfall in production that is expected to carry into next year. Usually a net exporter, India is actively importing supply this year. Production in India was estimated to be around 15 million tonnes in the current marketing year, down more than 40% from a year earlier. Demand averages near 23 million tonnes annually.

At the same time, production in Pakistan is down from record outturn in 2007-08 and production in Brazil, the world’s largest producer, was delayed by problematic weather.

World raw sugar (No. 11) futures shot to new 28½-year highs in New York early last week, pulling domestic raw sugar (No. 16) futures along in their wake. The domestic price is tracking the world price because U.S. cane refiners must garner some of their supply from the world market since not enough cane if produced domestically.

The International Sugar Organization (I.S.O.) last week forecast global sugar production will fall 10.4 million tonnes short of consumption in 2008-09 and 8.4 million tonnes short in 2009-10 as India’s outturn recovers somewhat.

Also last week, Fortis Bank said world white sugar prices have risen about 75% and world raw prices about 90% since the beginning of the year.

Domestically, harvest of the 2009 beet crop is in its early stages. New crop sugar should become available later in September, improving the domestic situation but will little impact globally.

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