Sugar prices rose to their highest level in more than a decade in London on Tuesday on rising concerns over a possible shortage of global supplies that could keep pressure on global food inflation, according to Bloomberg.
Bloomberg said the price of white sugar in the London futures market rose 4.3% on Tuesday, hitting its highest level since 2011, and notes that the price of this food staple, used in everything from soft drinks to chocolate, has skyrocketed. due to the prospect of limiting sugar exports from leading exporters in India and other countries, including Pakistan and Thailand.
There have also been concerns that the recent rise in oil prices could prompt Brazilian and Indian mills to divert more cane to ethanol production.
Sugar cane growers in Brazil and India can decide whether they want to produce more sugar or biofuels, whichever is more attractive.
“The sugar market is really overwhelmed,” said François Tory, an analyst at Paris-based consulting firm Agritel, quoted by Bloomberg.
“We had downward revisions of sugar production in the main countries,” he stressed.
Higher sugar prices are pushing up production costs for products like confectionery and baked goods, while energy, fuel and labor costs have also risen.
Rising retail sugar prices in India also increase the likelihood that the government will not allow additional exports at this time, putting additional pressure on the market, Toury said, according to Bloomberg.
XTB analysts also say that while Brazil has started harvesting and is expected to have a record harvest this year, the recent decline in production prospects in Asia, especially in India and Thailand, raises concerns about a possible shortage of sugar supplies.
In addition to the Indian government’s decision to potentially limit sugar exports, the same analysts highlight the El Niño phenomenon, which is expected to lead to a drier climate, which could also affect sugar production.
According to them, in the 2015/2016 season, a dry El Niño caused an aggressive rise in sugar prices.
“Last but not least, the recent surge in oil prices could lead producers to be more inclined to divert more sugar cane into biofuel production than into sugar production,” they say.