Logistical Challenges in Brazil Spark Global Sugar Shortage, Push Prices Toward Historic Highs

Mumbai, 22 Nov (Commoditiescontrol): Logistics issues in Brazil, the world's top sugar producer, have resulted in a significant amount of sugar being "trapped" within the country, causing a potential imbalance in the global market. This situation is particularly concerning as world sugar prices are already at a 12-year high. The Louis Dreyfus Company (LDC), a major trade entity, brought this issue to light on Tuesday.

Global policymakers are currently facing the challenge of food price inflation. While prices for some staples have declined, sugar prices remain high. Sugar is a crucial component in over half of all packaged food and beverages.

Luca Meierhofer, LDC's head of physical trading, discussed these concerns at an International Sugar Organisation seminar. He noted that Brazil is facing difficulties exporting its sugar. Adding to the challenge, the country is set to lose one of its export terminals next month.

Meierhofer explained that the global market needs about 3.5 million metric tons of sugar per month from Brazil. However, Brazil is only able to export a maximum of 3 million tons under current conditions. This situation is expected to worsen in January, as sugar exports are likely to fall to around 2 million tons due to a shift in focus to bean exports.

As no other regions are currently able to increase their sugar output or exports, this will likely result in a sugar trade deficit. This deficit is expected even though production and consumption levels might appear balanced on paper.

Meierhofer emphasized the need for sugar prices to rise to a level that would ration demand. Reflecting on past trends, he mentioned that in 2010, significant market reactions were only seen when sugar prices exceeded 30 cents per pound. Adjusting for inflation, he suggested that the current threshold for such a reaction would be even higher. As of the latest reports, March raw sugar was trading at 27.62 cents per pound, close to the recent 12-year high of about 28 cents.

(By Commoditiescontrol Bureau; +91-9820130172)