Sugar set to rise

The price of sugar could be on the receiving end of upward pressure, thanks to a sharp drop in production.

A fall in output in Brazil, one of the major sources of production of sugar, is combining with a growing slowdown in overall production around the world. Since 2010-11, production is up around 9%, but demand is expected to outstrip this by 2015, resulting in a shortfall.

Prices generally remain at levels not seen since early 2010, deterring investment in new production that would help make up the gap between supply and demand. The effect of this has been most pronounced in the countries of the old USSR, which have reduced their sugar beet production in response to sluggish prices. Production of sugar beet is expected to drop further still, with expectations of a near 20% drop in output in the coming twelve months.

Overall, however, it seems that the weak environment for sugar production will continue, with Brazilian output likely to remain low thanks to weather conditions, while a switch to the use of sugar for ethanol biofuel production will mean less supply available for food consumption. In the longer-term, this might provide additional upward impetus for sugar prices.

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