Sugar prices are a rollercoaster – Rabobank

Brazil had a record harvest, and Australian production also went up, but the US market will be faced by new challenges as demand for organic sugar increases.

The beginning of 2016 has been a “rollercoaster ride for sugar prices”, according to the latest Rabobank sugar report.

Much of the global price volatility can be attributed to hedge funds selling, triggered by unease over low oil prices and slower economic growth in China. Projected output from key markets like India and Thailand in the next quarter remains unclear, and that uncertainty is also driving volatility.

However, exports from Brazil and Australia are expected to remain flat or increase to the US and Europe, as there has been strong growth in production.

In Brazil, where 2015-16 production is expected to reach a record-breaking 30.8 million tonnes, some producers are milling much later into the season, keen to capture ethanol prices that are about 60 percent higher now than on average during peak harvest time. In February, 3.9 million tonnes of crop was milled in February, 80 percent of it for ethanol production. However, with an earlier than usual harvest expected to begin this month, prices will soon fall. That oncoming harvest could still be slowed down by bad weather, which is beginning to worsen.

Meanwhile, markets like the US are facing new challenges, such as Hershey’s decision late last year to create an organic product not sourced from sugar beet because of its genetically modified organism (GMO) origins.

Rabobank expects this to open the door for other large food companies to do the same, and as the year goes on the spread between non-GMO cane sugar and GMO beet prices could widen further. While acreage used for beet is also expected to keep growing in the medium term, beet production is expected to peak by 2019, while sugar cane production is expected to continue growth into 2025.

Projections for 2015-16

India 19.8 million tonnes
Mexico 2.94 million tonnes
Brazil 610 to 620 million tonnes
EU 15.3 million tonnes