World sugar prices are at the highest level in 28 years
There's considerable debate about looming supply crisis
Tom Stundza -- Purchasing, 8/19/2009 12:10:31 PM
The price of sugar on world markets has soared by 57% so far
this year as parts of Brazil,
the largest exporter, had rainfall four times more than normal, making the cane
too wet for milling. So, a coalition of this nation's largest food
manufacturers has warned of a pending shortage and has asked the U.S.
Department of Agriculture to ease quotas on imports. The government agency is
staying out of the controversy, however, since market economists say fears of
empty supermarket shelves and food industry warehouses are overblown.
The world price of sugar, as traded on the London International Financial Futures and Options Exchange, has moved from 14¢/lb last December to 22¢ this month. But, the Los Angeles Times says there is considerable debate about whether the run-up in sugar prices is a sign of a looming supply crisis. Just a fraction of global sugar supplies is traded on international markets. And, according to the USDA, the wholesale price of sugar in the United States has risen by just 15% from a year ago to a little under 35¢/lb.
Interestingly, buyers have yet to begin complaining--either about shortage or higher purchase prices--in various surveys. And, some analysts say the gloomy outlook of the big food companies is really part of a larger effort to pressure the U.S., and other governments into dismantling sugar trade barriers to boost supply to feed a growing global sweet tooth.
The U.S. consumes about 10 million metric tons of sugar annually, according to the American Sugar Alliance, the trade group that represents domestic sugar farmers. "I do not think there will be a severe sugar shortage for U.S. food manufacturers in the near future," Standard & Poor's equity analyst Tom Graves tells the LA Times. He says the lobbying by the food companies is more about the politics of sugar quotas than price spikes or shortages.
Meanwhile, Bloomberg is quoting the views of Martin Todd that the 2008-2009 surge in sugar prices will encourage farmers worldwide to increase plantings, potentially leading to a large surplus in two years. Todd, managing director of LMC International, an Oxford, England-based advisory company for agricultural commodities, says "we will see a very healthy response (to the high prices); we'll be looking at production surpluses again" by 2011. John Reeve, director for agricultural commodities at Standard Chartered Bank in Singapore, tells the news service that the current price spike will show signs of "substantially cooling off" early next year.
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