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Sugar’s 6 influential price drivers

Posted by Markos Gkogkos
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Sugar is a soft commodity, which is produced, traded and consumed all around the world. The sugar cane or sugar beets are the raw materials from which farmers can produce sugar. We use sugar widely in everything from food to industrial applications. Sugar can be produced and/or refined many countries and finds its way in different forms, for different purposes to different destinations. For this reason sugar has a prominent position in the commodity trade environment and how sugar price affects trading procedures, is something which sugar traders need to know about.

 

Looking at the country origins of sugar as a raw material, the top producers of are Brazil, India, China, Thailand and Pakistan and the EU as a group. When you are thinking to trade sugar commodities the mayor things to consider besides the logistics chain are the price drivers of sugar itself.

 

Looking at just at sugar prices graphs is not enough to understand sugar markets, you need to take into account the factors that drive the sugar prices. So, which are the most critical price drivers for trading sugar commodities?

 

 

Sugar price drivers

 

1. Global sugar stocks (inventories)

 

This is a factor actually that affects all commodities. Likewise for sugar, low levels of stocks indicate strong demand, weak supply or a combination of the two. Because of the long supply cycle of sugar, whenever there is a problem in terms of storing the sugar commodities, then there is also a significant effect in sugar price.

 

sugar stocks worldwide

sugar stocks worldwide

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2. Inflation of US dollar

 

US dollar is the main currency, which people use in financial transactions. This actually is the same for most of the commodities and especially for sugar as sugar derivatives are priced in dollars both in London and New York. A decrease in the value of US dollar relative to a commodity buyer’s currency can cause headache to the finance counselors of trading companies. Why? Because in this way the one who buys should spend less of their own currency for a certain amount of the commodity. A less expensive commodity is the reason for an increase in the demand and as well in the price.

 

 

3. Oil price

 

Another important factor which influences the price of sugar is oil price. This is because sugar can be considered an energy source. The value of an energy source depends on the caloric value of the source and the energy price. The latter is dominated by the oil price. This is not theory; in practice the sugar cane farmers in Brazil can produce sugar or ethanol from their cane. The ethanol, competes with gasoline in the transport fuel market. Thus a decrease in gasoline’s price will also mean a decrease in ethanol prices and hence less demand on sugar cane to produce ethanol, thus potentially an oversupply of raw sugar. And an abundance of raw sugar wil bring sugar prices down.

 

 

4. Weather conditions

 

As mentioned before countries with warm climate produce sugar mainly. However, imagine that a warm climate can also be “too warm” for sugar. A drought in Brazil, for example, can damage sugar canes and make the production cycle roll slower. While too warm atmosphere can cause problems, also wet weather is not ideal for producing sugar. Sugar canes require dry atmosphere. Malfunctions in the production cycle due to weather conditions are another driving factor in sugar price.

 

 

5. Governmental regulations

 

Governmental contributions and import tariffs are playing also a role in the game of sugar trading. Governments have twisted the sugar markets and the result is the excessive production of sugar cane. Europe today is the second larger sugar exporter in the world. In US though, import tariffs are meant to protect domestic farmers, so prices for US consumers have been raised. This is also why US consumers now are looking for different types of sweeteners.

 

 

6. Consumption trends

 

Most of us like sugar. Sugar is everywhere it provides us physical energy and makes food taste good. As the world population is growing the sugar consumption is most likely to grow. But sugar is also responsible for various health concerns such as obesity, diabetes and dental health. Governments and institutions have started educating consumers and as a result consumers are becoming more aware of the health aspects of sugar. Since the trends for healthier nutrition gets more momentum in the mature sugar markets, this could possibly slow down the growth in sugar demand in the future.

 

 

Control your price risks

 

 

The commodity price volatility and price trends are the first thing that traders and financial managers are monitoring in their daily operations and risk management. The second is the exposure they have to these markets as a result of their contracts, price & margin strategies and no to forget their cash flow projections. In addition a large scale of hedging instruments is available such at Futures, Options and OTC where in sugar specific mechanisms play a role such as “white premium” and “polarization premium”. These are complex processes due to the variety of variables and their dependencies and correlations.

 

A good way to manage price and margin risks of a sugar business starts with implementing the right technology to support it. A general ERP system is mostly not the right tool for managing a commodity business. We advise to choose an application specific to your sugar trading businesses, and when in trading of managing price risks with futures contracts, select CTRM software made for sugar trading.

 

Agiboo at the 4th annual Kingsman sugar conference in Miami 2017

Posted by Svetlana Tokunova
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The 4th Annual Kingsman Miami Sugar Conference 2017 was held from October 24 to October 26 2017 at the JW Marriott hotel in Miami, FL, United States. The conference was hosted by the key provider of commodities information and analytics – S&P Global Platts. The conference was very well organized and allowed the key sugar industry players from all over the world to meet and discuss. The topics on Seminars and after session discussions were primarily covering the sugar news and prognoses in the North and South American regions with the attention to global sugar market overview.

The topics on the regional sugar conference designed especially for a North and South American audience:

  • Explore the outlook for sugar in key markets in the Americas, with updates on Mexico, Brazil, Central America, Cuba, Ecuador, Colombia, and more
  • Understand the impact of India and the European Union on international sugar markets
  • Benefit from outstanding networking including 3 days of activities and 2 receptions
  • Meet with sugar and ethanol traders, sugar producers, investors, buyers, and more
  • Connect before the conference using our networking app
  • Attend the pre-conference Ethanol Markets Seminar for in-depth perspectives on ethanol production and demand
  • Sign up for the Seminar plus the Conference and save on registration fees

The conference was visited by over 200 attendees. Delegates have represented over 30 countries from North and South America, Central America and the Caribbean, Europe and Asia. Attendees include major sugar producers, sugar mill owners, sugar buyers, sugar and ethanol traders, commodity analysts and investors, and others.

Agiboo did attend the conference and participated as Agiboo has a strong commitment to the sugar trade industry.

 

 

Agiblocks Commodity Trade and Risk Management Software for Sugar accommodating success in a changing sugar industry.

Posted by Jan van den Brom
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On 1 October 2017 the European Union production quota for sugar will be cease to exist. Again a reduction of market interference by the EU policy makers and a development very similar to the discharge of dairy quota’s in the EU.
 
Many connected to the industry wonder whether the sugar industry will face a similar market scenario as Dairy. When EU dairy quotas were abandoned market dynamics where significantly changed in a very short period of time. Milk production went up by almost 10% on a continent where the population is growing in a very low pace, and unfortunately this policy change coincided with import and export politics for markets such as China and Russia. The impact on milk prices and thus dairy companies and farmers has been tremendous. Like always commodity markets will return to their equibrilliums , but nevertheless such is never without a period of turbulence.
 
Sugar is a very different type of commodity then dairy, it is maybe easier to trade and it has a more liquid derivate market. It is therefore a challenge to foresee how the sugar industry and trade will react in anticipation and after 1 October 2017. Despite the recent price hike, since 2013 sugar prices dropped approximately 40% and the EU sugar price is nearly already in line with the world market prices. Main factor of anticipated price developments is the increasing competition by sugar producing countries and producers. You can expect that competition will become even stronger after 1 October 2017. There is one thing for sure; there will be a volatile period a head. And such market conditions will require tighter management of trading positions, market exposures and the use of derivative instruments to either hedge or take competitive advantage in market.
 
We at Agiboo recognise that especially European based sugar producers and traders will require a more advanced risk management toolset when the quota mechanisms come to an end! We consider that for most EU producers such need arises already today, since the market today anticipates the projections of next years crops and desired refining margins or beet price levels for EU (cooperative) beet farmers. For European based companies, more than ever before, it becomes essential to have real time data and information about the combined forward purchase and sales and hedges portfolio to manage pricings, price and margin risks.
Agiboo recommends that such effective price and margin risk management is supported a trustworthy software solution which can accommodate the specific requirements and functionality for sugar trade and/or merchandising. It might be a comforting thought that such a software solution is available. Agiblocks commodity trade and risk management has specialised functionality for sugar. Agiblocks for accommodates deal capture for specific sugar scenarios and sugar risk management. A good example of this is the support for white premium pricing and white premium hedging. Agiblocks enables for real time position management and real time market to market valuation and offers all required Commodity ERP functionalities such as logistics & inventory management, invoicing and financial management.
 
Be ready for the challenges caused by the 1st October 2017 ! Allow yourself to have best software tools for the procurement, trade or merchandising of sugar. Benefit from new technology and start using Agiblocks as your end to end Commodity ERP or as your price and margin risk management toolset
on top of your current application landscape.
 
Read more about Agiblocks CTRM on the www.agiboo.com website

or download our CTRM for sugar whitepaper