The past few weeks have been particularly challenging for sugar traders as August proves to be one of the worst months for the commodity in almost a decade. Raw-sugar prices are moving downwards and could reach the biggest one-month decline seen this year, having declined by 6.4 percent to just 11 cents per pound in the New York futures market. The reason for this, besides the strong dollar and a slowing global economy, has been exacerbated by a growing supply glut in India.
August’s decline is merely the continuation of what’s been a two-year bear market for sugar, with these low prices eating into the profit margins of sugar refineries around the world. Just like with coffee farmers in South America who are being pushed out of the business due to depressed coffee prices, falling sugar prices have threatened the livelihoods of sugar farmers more so than ever before.
The main cause of this comes from India, which has surpassed Brazil as the world’s largest producer of sugar, outputting a record 33.1 million tons. This is the third year in a row where the output from India has surpassed 30 million tons. At the same time, the U.S. Department of Agriculture has predicted that India’s current sugar stockpiles have grown to around 17.6 million tons due to bumper harvests. The idea that this much extra sugar will need to be sold on the market is depressing prices to new lows.
“We’re really seeing a serious excess of sugar right now,” said Kona Haque, head of research at London-based trading house ED&F Man according to The Wall Street Journal. “Thailand had a mega-crop. India had a huge crop. Brazil is doing everything it can to balance the market.”
At the same time, many experts in the sugar market expect that the Indian government will double down and renew an export subsidy program for refineries in the weeks to come. The policy, first introduced in 2018, led to a 52 percent increase in exports which has resulted in a series of complaints from rival producers. Australia, Guatemala, and Brazil have all filed complaints to the World Trade Organization, claiming that these subsidies are illegal and should be halted.
Other factors that have been influencing the price of sugar is oil. Concerns regarding a global economic slowdown have helped push down the price of Brent crude by 9 percent this month. The relationship between oil and sugar prices have been noted by many analysts in the past, as oil prices are closely correlated to the energy costs at sugar mills that refine raw sugar cane into either ethanol or sugar. Rapid swings in the energy market could lead to a shift in global sugar production by as much as 10 million tones over the course of a growing season.
At the same time, governments in many developed economies are working to discourage sugar consumption for public health reasons in an effect to tackle increasingly common conditions like obesity and diabetes. On the other hand, demand in emerging markets continues to grow, albeit slowly.