This week sugar prices have fallen to the lowest level in almost 5 years, losing 6% of its value. Additionally, being the largest sugar exporter, Brazil’s weak currency is causing exporters to fight to sell in real, in exchange for more dollars. The real continues to fall against the dollar and this, coupled with low bulk demand and strong production has weighed on sugar prices. In a report produced by UNICA (Brazilian Sugarcane Industry Association) almost 50 sugar mills have been shut down with 70 companies filing for bankruptcy in the last 4 years. India, the second largest sugar producer, output has outweighed demand since the 2009-2010 season. Many producers are now looking for support from their government, in the form of an export subsidy, to make up for the cost of production.
Investors Notes:
- The real has depreciated against the dollar for the majority of 2014.
- The most traded contract, the May futures contract has fallen almost 2% representing one of the biggest intraday lows on the contract.
- Spot prices have fallen below cost of production, at around $14.51 cents per pound with output cost around $20 cents per pound, a loss of around 20% per pound.
- With Brazil’s economy continuing to struggle, with inflation jumping to 7.1% further falls in sugar prices are expected.
- Banc De Binary Analysts predict there will be further downside risk to sugar prices, indicating a potential downward movement in SUGAR contracts.