Sugar Prices 2012 High as instability oil prices

World sugar prices are likely to stay high in 2012 due to external factors such as government policies, oil prices and instability in the Eurozone, according to FoodNavigator. Projections form the Organisation for Economic Cooperation and Development (OECD) from 2011/12 through to 2020/21 put the average price for sugar at US$518.5 per metric tonne, 48% higher than the US$349.5 per tonne average from the earlier period.

A USDA reports ‘Post-Reform European Union Sugar-Prospects for the Future' published late last month assessed past EU sugar reforms and analysed the changes ahead for the EU as a consequence of further reforms in its new Common Agricultural Policy.

The report said: "It is likely that world sugar prices will remain higher than in the past when the original reform measures were being considered."

"The Indian production cycle and government policies are the main source contributing to an expected continuation of world sugar price variability. Government policies that intervene in sugar markets are assumed to continue," it said.
"The figure shows future price volatility, with a low of USS$454.1 per tonnes in 2012/13 and a high of US$608.7 per tonne in 2015/16," said the report.

"Low prices are expected in 2012/13 and 2013/14 that make a case for retaining the quota system during the period in which quota is being debated," it continued.

The report added that another influence affecting prices was instability in the Eurozone.

"The European Union would be in strong competition for the sub-Saharan African exports unless the euro appreciates above projected levels," it said.

"Looking ahead, the value of the euro and increased demand from emerging market economies will likely have strong effects on EU sugar markets that policymakers cannot afford to ignore."

The report added that the likely enlargement of the EU to include Croatia and Serbia could also impact the sugar market.

"They (Croatia and Serbia) have been granted loans to improve their sugar infrastructure and could become more efficient producers that could add to greater self-sufficiency in EU sugar production in an EU of 30 member states."

According to the report, a lack of risk management policies in the EU, Unlike in other regions, mean the next CAP reform will likely address the price volatility issue, though many factors will still affect sugar prices.

"Oil price changes affect world sugar prices by influencing trade-offs in producing either sugar or ethanol in Brazil," said the report.

Sugar prices will continue their good trend next year despite the natural disasters that have plagued several cane-producing countries, says the Office of the Cane and Sugar Board (OCSB).

Secretary-general Prasert Tapaneeyangkul said prices for the next three years will stand at 22 US cents a pound, up from 12-16 cents in the past.

"Next year's global sugar surplus is expected to be 4 million tonnes, but prices will remain good. This shows that cane and sugar are commodities that are very stable," he said.

Brazil's output will worsen after many years of drought and frost, while new planting is limited, said Dr Prasert.

Meanwhile, India is starting to produce at a sufficient rate and will export 2 million tonnes after remaining stagnant for three years. Thailand's flood crisis will have little effect on cane production, which is forecast at 100 million tonnes for the 2011-12 season, he said.
The OCSB also approved a decision to increase initial sugarcane prices to 1,154 baht a tonne for the 2011-12 season. Planters had asked for a 200-baht increase from the current price of 1,000 baht.
"The only risk we'll have next year will be from natural disasters. There'll still be a lot of water next year, but drought is expected within two years," Dr Prasert said.

However, Chaiwat Khamkaenkhoon, president of the Northeastern Region Sugar Cane Planters Club, said production for the current season would total only 90-95 million tonnes due to flooding in the North and Northeast a and drought in the central region.