Investing Caffeine

How Sweet it Is: Sugar Prices Near 30-Year High

August 13, 2009 at 4:00 am Leave a comment

The Cap'n Hangin' with the Crunch Berry Beast

The cost of a sugar coma has gone up, making my Cap’n Crunch with Crunch Berries craving a pricier endeavor. It’s seems like almost yesterday when I was crouched over my sugar cereal on a Saturday morning watching cartoons – hey wait, maybe that was last weekend? Regardless of the timeframe, prices for sugar have not been this high since Coke and Pepsi used sugar, rather than corn syrup, in their 1970s formulations and Cuba was the world’s largest sugar producer.

What’s the reason for the +67% price rise in sugar this year*? There are several reasons:

1)      Disappointing Crops: India is the largest consumer of sugar at 23.5 million tons and a very significant producer of the sweetener. Due to deficient rainfall in the northeast and southern regions in India (caused in part by El Niño conditions), the country is estimated to need more than double the imports of the good this year. Disappointing crops in Brazil have also contributed to the tightening global supply. India and Brazil account for about 40% of global sugar supplies.

2)      Forward Buying / Hedging: The supply-demand dynamics of the sugar market have caused certain high sugar-consuming countries, like Egypt and Mexico, to buy large stockpiling purchases – further pushing up prices.  Beyond consumer and speculators, global food and beverage companies from the likes of Kraft, General Mills and ConAgra Foods have been purchasing futures to hedge the risk of additional price hikes.

3)      Oil Increase Buoys Ethanol: Oil’s +59% price increase this year to about $70 per barrel has provided additional price support through increased demand for sugar-based ethanol.

Weather, oil demand, and sentiment may change thereby easing the cost burden of higher priced sugar goods, but irrespective of sugar prices you can rest assured my Cap’n Crunch with Crunch Berries addiction will remain resilient.

*Source: The Financial Times (8-7-09).

Read Financial Times Article on Sugar Here

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

Entry filed under: Commodities, Financial Markets, International. Tags: Brazil, Cap'n Crunch, ConAgra, ethanol, General Mills, hedge, hedging, India, Kraft, sugar, Wade Slome.