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Sugar or Biofuel: Trends for International Sugar Trade and Investment
Sugar is one of the most valuable agricultural commodities. Around 80 per cent of the world’s sugar is derived from sugar cane, grown by millions of small-scale farmers and plantation workers in developing countries. In some countries, sugar beet growers’ contracts with processors, which operate as farmer-owned cooperatives, require those who leave unharvested acres to pay a fee to the cooperative so it can pay its bills in leaner years. Sugar has been falling since October 2016 after more than doubling.
Sugar can be one of the most volatile commodities that trade on the ICE futures exchange. Since way back in 1971, the sweet commodity has traded as high as 66 cents per pound and as low as 2.29 cents. The most recent significant peak in the sugar futures market came in 2011 when it hit a high of 36.08 cents. Increased production then drove the price to a low of 10.13 cents in August 2016, which turned out to be a bottom. The U.S. government authorized the import of an additional 100,000 short tons of Mexican refined sugar due to the harvest issues in December 2019. Producers Western Sugar Cooperative and United Sugars Corp issued force majeure notices due to what producers have called the worst weather conditions in nearly two decades.
Sugar refinery in Egypt
Some UAE-based investors, along with Egypt’s Al Ahli Capital Holding, are investing $1 billion to set up a sugar refinery as well as develop agriculture land in Egypt. Jamal Al Ghurair, managing director of the UAE-based Al Khaleej Sugar, and other UAE investors will hold 70 per cent stake in the sugar refinery while the rest of 30 per cent will be controlled by Al Ahli Capital.
Demand and Supply
Weather and crop yields in those nations often determine the path of least resistance for the price of world sugar. Brazilian sugar companies are increasing their capacity to produce ethanol in the face of depressed global sugar prices and government policies expected to boost demand for the bio fuel. The two leading producers in the world are Brazil and India. The United States is the world’s third-largest sugar importer after Indonesia and China, buying 2.8 million tonnes in 2018-19, according to the U.S. Department of Agriculture.
How to invest?
Sugar is the sweet commodity depicting extreme volatility and it has a low correlation to stocks. One can buy ETPs, future contracts or buy stocks of sugar companies to invest. The price of world free-market sugar can be highly volatile, but many countries impose tariffs, quotas, and subsidies to aid domestic producers.
2020- 2021 trends
Two consecutive campaigns of lower sugar production and trade deficits are forecast in the European sugar market. A shift to ethanol in the 2018-19 season slashed Brazil’s sugar output by 9 million tonnes to a 12-year low and more switching to the bio fuel next season could help to wipe out a global surplus weighing on sugar prices. Brazil could also lose its crown as the world’s biggest sugar producer to India for the first time in 16 years, according to the U.S. Department of Agriculture.
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