Brazil Sugar Prices
It looks as if 2008 is going to be one of the cheapest years in recent history for purchasing Brazilian sugar as Brazil and India are both in the process of rapidly expanding their sugar producing capabilities, and a global surplus of around 11 million tons of sugar is forecast for the 2007/2008 period.
When trying to understand the international sugar market, it is impossible to underestimate the impact that the growing global demand for sugar ethanol has upon sugar production. Because both sugar ethanol and sugar are products of sugar cane, and because there is only so much sugar cane to go around, Brazil and other sugar cane growing nations are constantly playing an economic balancing act, putting a portion of their sugar cane towards ethanol production, and a portion towards sugar production. In the current climate it seems highly likely that Brazil will be focusing more heavily on ethanol production both this year and in the years to come. Because of India’s rapid sugar production, coupled with Brazil’s large output, raw sugar prices have been falling steadily since early March 2008. Raw sugar prices picked up briefly in mid April, then continued their downward trend. White sugar has followed much the same pattern, disheartening Brazilian sugar exporters who are facing rising production costs even as their export profits are plummeting.
Cost of Sugar Production In Brazil
For a very long time, Brazil was one of the lowest cost sugar producing nations in the world, with sugar in the Sao Paulo region costing around 5 cents per pound to grow. This gave Brazilian sugar producers a great deal of wriggle room when sugar prices fell, as profit margins normally remained relatively high. Unfortunately, recent developments have seen an unprecedented rise in the cost of sugar production, and in mid 2007, it was announced that Brazil was no longer the most economical producer of sugar in the world, but instead tied for the position with Australia and Guatemala. The elevated cost of production has been caused not only by a falling dollar, which has more than halved to settle at BRL 1.80 from its high of BRL 3.60 to the US Dollar in 2005, but also by the increased cost of machinery associated with sugar production due to the sudden influx of interest in the sugar market, not to mention the high prices of transporting sugar around the world as fuel prices have surged ever upwards.
History Of Brazilian Sugar Prices
In the 15 year period from 1985 to 1999, sugar prices in Brazil fluctuated quite substantially, sometimes almost doubling in price from year to year, and in other years falling up to 30%. From 1999 to 2002, overall prices for refined Brazilian sugar rose from six cents per pound to around 8 cents per pound, peaking in mid 2000 with a price of 12.5 cents per pound. Whilst this may seem superficially to not be much better than current day sugar prices, we must also take into account both the relative value of the Brazilian Real and the US Dollar during this time frame, but also the lower production and export costs. In real terms, Brazilian sugar exporters were making much larger profits in the late 90’s than they are today.
Competition Driving Down The Price Of Brazilian Sugar
A major problem for Brazil in terms of sugar exports is the rise of India as a sugar producer. Whereas Brazil once stood for a long time as the world’s major sugar cane producer and exporter, India is now hot on its heels. What India lacks in soil quality, technical know how, and cane quality, it makes up for in sheer determination to plant and mill as much sugar as possible. Brazil has taken a much more scientific approach to the problem of producing sugar, choosing to invest heavily in research and development. It is certain that Brazil’s knowledge of sugar cane is still unparalleled in the world. Brazil used genome sequencing technology to sequence the sugar cane genome, and today there exist over sixty different strains of Brazilian sugar cane which have been developed to yield more sucrose and grow in a wider range of conditions than traditional sugar cane. Brazil has also taken care not to let the sugar race destroy its environment, and in May 2008, the Sao Paulo region suspended the granting of licenses to new sugar mills and refineries in spite of heavy demand because of concerns relating to the potential impact of these facilities.
India, on the other hand, has taken less care in its build up, and though it is working on improving sugar cane yield and milling efficiency, the main thrust of Indian production is simply to plant lots of sugar cane and build as many refineries and mills as possible. This is a strategy that has paid off to a certain extent, but ultimately no country benefits from flooding the international market.
In the current environment, it is a buyer’s market for Brazilian sugar. However it is unlikely that sugar prices will continue to fall for an extended period of time. There is still a great global demand for sugar, and reckless resource management and greed could stymie the Indian sugar industry if it is not careful. In addition to this, the ever growing demand for sugar ethanol could see sugar production in Brazil and other sugar cane growing countries falling considerably as high profit ethanol production becomes the focus. If this happens, Brazilian sugar could once more become a commodity in relatively short supply, with a price to match.
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