With increasing level of sugar yield in Brazil and Australia, the global sugar glut for three years in a row has resulted in the longest stretch of sugar pile/supply in more than a decade. According to a report from International Sugar Organization, in the year ahead, production of sugar is expected to surpass the demand by 5.9 million metric ton and the figure is huge. Analysts and traders expect the global sugar supply including inventories to be at the highest level ever.

Since February 2011, sugar futures have fallen down to about 45 percent at international markets with an increase in sugar plantation from the major sugar producing countries including Russia and Thailand. According to a source of the United Nations (UN), the global food prices directly or indirectly aligned to sugar are moderating after rise in sugar production and inventories, supported obviously by falling prices. With fall in prices of sugar, food based companies are eventually benefiting from their lowered cost of production. For instance, Nestle SA, which had spent about $1.6 billion on sugar last year, is expecting to procure the required sugar at reduced prices and also by a huge margin.

Jonathan Kingsman, the chief executive officer of Laussane, a Switzerland based Research Company, on a statement said, “More sugar will have to be stockpiled on lack of demand and we would expect prices to stay under pressure.” This remark definitely highlights the concerns for increasing stockpiles of the ‘Sweetener’ and its impact on sugar fundamentals (demand-supply patterns) at international market.      

Though sugars’ story at western part of the globe is supply focused, amid arrival of festive season in one of the major sugar consuming nation India (other East Asian countries as well including China), the increased demand for sugar is expected to put bullish pressure on the sugar at eastern markets, though for a short run. In line with ongoing double faced sugar regimes at two different parts of the globe, it is believed that arbitragers are endeavoring to grasp the opportunity from these markets via cashing on price movements in short run or until the price adjusts.

Note: This blog is just an expression of the author’s opinion and cannot be deemed responsible for any losses incurred.