Sugar price forecast: Where to next for the commodity?
US raw sugar and UK white sugar prices surged to multi-year highs in November as the summer drought slashed crop yield in Europe and global output fell amid rising energy costs.
As a result of the extreme summer heat across Europe this year, sugar beet crop yield fell on the continent.
Sugar production is an energy intensive process and producers in Europe were also hit by the surge in energy costs amid disruption to Russian natural gas exports. The EU is the world’s third largest sugar producer, and lower output this year has led to a market deficit.
Unseasonably heavy rainfall in Brazil – the top global producer – has also delayed sugar cane crushing and production, further disrupting supply.
UK Sugar price chart
According to the European Commission market report published on 27 October, it has forecast the global sugar deficit at 1.3 million tonnes in the 2021/2022 season (October 2021 to September 2022).
Earlier in October, the Association of the Chocolate, Biscuits and Confectionery Industries of Europe (CAOBISCO) warned that “the tense commodity supplies situation is reflected in exceptionally high prices on the spot market. Availability of essential commodities like sugar, dextrose, glucose or isoglucose is putting our factories at risk.”
In response to the constrained global sugar supply this year, prices in the UK and US have increased over the past month.
The US raw sugar no. 11 futures traded on the Intercontinental Exchange (ICE) jumped to 20.29 cents a pound on 15 November, the highest since February 2017. Although prices have since fallen. The contract last closed at 19.52 cents/lb on 30 November, staying around six-year highs.
The UK white sugar no.5 futures spiked to a six-year high at $551.30 a metric tonne on 15 November. Although prices have eased and last closed at $533.70/tonne on 30 November, it remained around the six-year highs level.
Are you interested to learn more about the market and analysts’ sugar price predictions? Read this article for the recent market development and the latest sugar price forecasts.
What is sugar?
Sugar is the generic name for soluble carbohydrates with a sweet taste. It is commonly used in food as a sweetener, but it also has other industrial applications.
According to the Sugar Association, sugar is used to balance acidity and add bulk or prevent spoilage. It is also used in the manufacturing of medication and bioplastics.
Sugar is produced from sugarcane and sugar beets. Sugarcane only grows in tropical climates, so the crops are concentrated in the southern hemisphere, while the main sugar beet producing regions are in Russia and Europe.
Brazil is the world’s largest sugar producer, followed by India and the EU. Due to the disruption caused by La Niña – a climate pattern that describes the cooling of surface ocean waters along the tropical west coast of South America – in 2021, sugar output fell in Brazil and India overtook it as the largest producer last year.
According to Statista, India produced 36.88 million tonnes of sugar in the marketing year (MY) 2021/2022, while Brazil produced 35.35 million tonnes. Output in the EU was at 16.51 million tonnes.
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Heavy rainfall in Brazil delays sugarcane crushing at start of 2022/2023 harvest
There has been heavy rainfall across much of Brazil since the start of this year, with some states experiencing deadly flooding. According to the World Weather Attribution, the state of Pernambuco received more than 70% of the rain that usually falls in all of May in less than 24 hours on 27-28 May.
Due to months of unseasonable rainfall, sugarcane crushing in the centre-south region of Brazil fell to 516.79 million tonnes between 1 April to 15 November 2022, down 0.1% compared with the same period in 2021, data from Brazilian industry group Unica showed.
Sugarcane crushing is the extraction step in sugar production. The extracted juice is heated and filtered, then undergoes a series of crystallisation steps to create raw sugar.
Despite the delays in sugarcane crushing, sugar production increased to 31.97 million tonnes over the past 6.5 months, up 0.29% from the same period in 2021. This is due to improving weather conditions in Brazil, leading to increased sugarcane available for crushing.
According to the US Department of Agriculture (USDA) data in November, sugar production in Brazil was expected to increase to 38.1 million tonnes in the MY 2022/2023 (October 2022 to September 2023) due to favourable weather conditions.
Global sugar production rises despite lower EU output in 2022/2023
In contrast to Brazil, sugar production in the EU is expected to fall to 16.2 million tonnes in MY 2022/2023, down 329,000 tonnes from the previous MY.
The USDA attributed the lower EU sugar output to “farmers reducing sugarbeet planting in favour of more profitable crops like corn and sunflower”.
Despite falling output in the EU, global production was projected to increase to 183.2 million tonnes in MY 2022/23, up 2.8 million tonnes from 2021/22 as increased production in Brazil, China and Russia was expected to more than offset decline in the EU, India and Ukraine.
With output rising, the European Commission forecast a global sugar surplus of 5.6 million tonnes in the 2022/2023 season.
Sugar price forecast: Projections for 2023 and beyond ![US sugar spot price chart]( "US sugar spot price chart")
As of 1 December, despite the expected market surplus next year, some analysts remained bullish in their sugar price forecasts and projected prices to rise in the next one to five years.
Algorithm-based price prediction website Wallet Investor published its sugar price forecast 2023 at 21.685 cents/lb and predicted a rise to 30.5 cents/lb in 2027.
Gov Capital’s sugar price forecast was even more bullish, as it projects the commodity price to rise to 31.62 cents/lb in the next 12 months. The website’s sugar price forecast for 2025 projects sugar prices rising past 50 cents/lb, reaching 100 cents by 2027.
In contrast, algorithm-based Trading Economics expects the average sugar prices to fall to 18.97 cent/lb by the end of the fourth quarter and to 17.92 in 12 months’ time.
In a report published in 2019, the OECD expected the average raw sugar price at 17.5 cents/lb ($386/tonne) by 2029, and white sugar prices at 21.3 cents/lb ($469/tonne). In its agricultural outlook 2020-2029 report, it said:
Due to the market volatility caused by war in Ukraine, analysts have refrained from issuing any long-term sugar price projection and no analysts have issued any sugar price forecast 2030.
Note that analysts’ predictions can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before trading. And never invest or trade money you cannot afford to lose.
FAQs
Is sugar a good investment?
Sugar is widely used in food and industrial application and is a key ingredient for confectionery.
However, sugar commodity prices can be volatile. Whether it’s the right investment for you depends on your investing goals and portfolio composition. You should conduct your own research. And never invest what you cannot afford to lose.
Will sugar go up or down?
No-one can say for sure whether sugar prices will go up or down. The sugar prices movement will depend on the commodity’s supply and demand. It’s also worth noting that as the US dollar is the main denomination in contracts, the value of the currency also has an impact on prices.
Should I invest in sugar?
Only you can decide if you should invest in sugar and this will depend on your investment goals, risk profile and portfolio composition. Please do your research before making any investment decision and remember that sugar price forecasts by analysts could be wrong. Remember to never invest more money than you can afford to lose.
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