Sugar Prices Bubble Up to Highest Since 2012

The surge could lead to costlier sweet foods and drinks

· Bad weather in India, China and Thailand has hit sugar production in all three countries

Sugar prices have shot to their highest level in more than a decade, boosted by disappointing harvests in some of the world’s largest producers and strong demand in China.

Prices for raw cane-sugar futures traded in New York, the international benchmark, have jumped this year. In recent sessions they traded above 24 cents a pound, reaching the highest since March 2012.

Bad weather in India, China and Thailand has hit sugar production in all three countries, just as China’s economy has begun to reopen following the end of coronavirus lockdowns.

“A lot of things have gone wrong on the production side,” said Peter de Klerk, senior economist at the International Sugar Organization.

Winners from the rally include Brazilian farmers, who are on track for a solid crop. Losers could include both food companies and consumers.

Food makers will have to decide whether to pass on higher costs to end-buyers, or to swallow lower profit margins. Still, many companies buy ingredients well ahead of time and sugar accounts for only a fraction of final product prices. Some drinks companies could switch to alternatives like high-fructose corn syrup.

The upswing comes as many other commodities have held broadly steady or fallen this year. Prices for wheat, corn, nickel and natural gas are all lower, while Brent crude oil is close to flat. Some other agricultural futures, like cocoa and orange juice, have also risen.

The Thai sugar harvest was hit by heavy rain and pricey fertilizers, with the shortfall so big that most mills ended their refining season early, according to the International Sugar Organization. Thailand will fall about 1 million metric tons short of the 12 million metric tons previously expected, Rabobank estimates.

Rain has also cut into India’s crop. India has similarly fallen about 1 million metric tons behind forecasts, with this year’s harvest ending abruptly, said Rabobank analyst Carlos Mera. In China, the government this month trimmed its production forecast, blaming bad weather, pests and diseases.

Brazil, meanwhile, is sitting in a sweet spot. After a weak year, production has rebounded in the world’s biggest sugar producer, and is likely to total 36.5 million to 40 million metric tons this year, said Charles Branch, head of agriculture and energy at Britannia Global Markets. He said high prices would lead mills to focus on producing sugar rather than ethanol.

In another sign of a buoyant market, refined sugar prices are surging. White-sugar futures have moved up by 20% this year through Thursday, to $663.80 a metric ton, and recently hit their highest since October 2011.

Chinese buying has added to upward pressure on global sugar prices. Prices in China are up by about 16% this year, and food producers have been stockpiling supplies, said Mr. Mera at Rabobank. “We expect China to import significant volumes of sugar,” he said, pointing to strong retail-sales data.

The situation could remain sticky for years. The global sugar market will probably remain tight, with demand likely to outstrip production by 6 million to 7 million metric tons over the next three years, said Robin Shaw, an analyst at brokerage Marex Spectron. As recently as January, he had expected a surplus of about 4 million metric tons this year alone.

A likely shift in global weather patterns, from one known as La Niña to another dubbed El Niño, could further weigh on sugar production.

“We are worried about the potential for a strong El Niño,” said Kona Haque, head of research at ED&F Man. “This weather phenomenon leads to dry weather conditions in Asia, meaning yield risks for India’s and Thailand’s next crops. The market can’t afford further drops in production in these regions.”