Sugar is one of the most important agricultural commodities in the world. While its increased consumption is often not good health-wise, billions of people around the world cannot do without it. Sugar futures are listed in the main exchanges like the Intercontinental Commodities Exchange (ICE) and Chicago Mercantile Exchange (CME). The prices listed by these exchanges is usually the most followed by investors. However, the reality is that the price of sugar differs from country to country. This is because the sector is very protected by governments, which offer subsidies to protect the farmers. All this makes the price of sugar highly volatile. In the past 30 years, the price per pound has moved from 2.2 cents to a high of 66 cents.
The biggest producer of sugar in the world is Brazil. In the country, sugarcane is mostly used in the manufacture of sugar and ethanol. Therefore, most cars in the country are powered by ethanol. As the Emerging Market economies have suffered, so has the Brazilian Real, which has fallen against the dollar sharply. Since sugar futures are traded in dollars, the decline in the real affected the price of sugar.
In the USA, while sugarcane is grown, most of the sugar comes from beet. In this month’s WASDE report, the sugar production was increased for both the United States and Mexico. The supply and demand dynamics for sugar are summarized in the table below.
As this has happened, the price of sugar has fallen to a ten-year low of 9 cents per pound. As of this writing, sugar was trading at 10 cents per pound with the RSI trading at 41. There is a likelihood that the price will continue moving lower before a rally starts.
