Is the sugar industry on the verge of collapse?

Introduction

India is the world's major consumer of sugar and the world's second-largest producer, next to Brazil. In India, sugar is the most widely used and least expensive source of energy, accounting for 10% of daily caloric intake. The primary crop for generating sugar, sugarcane makes up around 75% of the world's total sugar supply.

In general, planting takes place from January to March, while harvesting happens from November to March. Sugarcane is farmed all year round in some states. Between 12 and 18 months are needed for it to mature, depending on the cultivar, and seeding timing. Within a month of the start of harvesting, crushing often starts and lasts all year.

Sugar grades

Crystals (L-grade), moderate crystals (M-grade), and small crystals are the three types of sugar (S grade). About 80% of all sugar production is made up of M and S grades that are traded just on the NCDEX market. The ICUMSA number, a metric that evaluates the chemical characteristics of sugar for grading, is used to determine the sugar's quality.

Market Analysis

In 2021, the volume of the world sugar market was 185 million tonnes. Looking ahead, IMARC Group projects that the market will grow at a CAGR of 1.8% from 2022 to 2027, reaching 206.6 million tonnes.

Rising living standards and greater purchasing power in emerging economies are now driving the sugar market. These factors typically result in greater consumption of processed goods like dairy, soft drinks, and other items with high sugar content.

Worldwide Demand

The relationship between wealth and sugar consumption is a crucial component of world demand. Wealthier countries consume more sugar than poorer economies because it is seen as more of a luxury than a need. The fastest-growing markets for sugar consumption are in South America and Asia, therefore maintaining economic growth in these regions is good for pricing while a bust in emerging markets could lower prices.

Factors affecting sugar demand and supply

The weather can have a significant impact on the supply and consequently the price of many agricultural commodities. Crop loss and supply reductions might result from unfavourable weather conditions. Glucose is no longer just used to produce food; it is also a component in the creation of biofuels, which is why demand is still growing.

Demand for biofuels, of which sugar is a key input ingredient, is rising because of rising environmental awareness. Due to its productivity advantage over corn, it is taking the place of corn as the primary input in the manufacturing of biofuels. To be able to predict prices realistically and scientifically, it is important to keep an eye on these two factors as they together are increasing the demand for sugar.

Almost all governments have some sort of control over the creation of sugar prices. Either the import/export of the nation is restricted, or farmers and industry are given subsidies. This could lead to a substantial pricing disparity between nations. Governmental action will have an impact on the regular functioning of the market in addition to price discrepancies. This could lead to wildly fluctuating market prices and sudden price changes.

The demand is negatively impacted by health awareness. The public is being educated by recent studies on the harmful effects of heavy usage. Due to this, manufacturers either utilize sugar alternatives or lower the amount of sugar in their products.

Important data about the world sugar market

• The annual global sugar output ranges from 175-200 million tonnes.
• While the remaining portion is eaten domestically in the nations of production, only 65–70 million tonnes are traded globally.
• The annual increase rate has decreased to around 1%. to somewhat 2-2.5% until about ten years ago, with the major drivers of growth being the rise in the global population and the expansion of the economy, which go hand in hand with an increase in the consumption of processed foods high in sugar.
• The biggest exporter and producer is Brazil. Production reached a peak of 40 million tonnes throughout 2017–18, among which 29 million tonnes have been exported; however, both levels fell by about 10 million tonnes in 2018–19 and 2019–20 due to lower sugar prices, which made it more profitable to process sugar cane into ethanol rather than refined sugar during those years. This season, a recovery of some kind is anticipated.
• With 26 million tonnes consumed, India is the greatest consumer, followed by China and Indonesia with roughly 5 million tonnes respectively.

Tonnes exported by Brazil, Thailand, and India are higher

The surplus in 2022–23 is predicated on a rise in sugar production in Thailand in 2022–23 and Brazil in both 2022–23 and 2023–24 national crop years. In 2022–2023 and 2023–2024, it is predicted Brazil will generate 32.5 million mt and 34 million mt, respectively. In 2022–2023, Thailand is anticipated to produce slightly over 11.5 million mt.

In 2022–2023, India's sugar production is anticipated to surpass previous records for the second consecutive year, totalling 36.1 million mt. This is after 4.1 million mt sugar sugars were used to produce ethanol.

However, from the standpoint of availability, India might export more given that international sugar prices trade at or above domestic price parity, which is currently estimated to be around 18 cents per pound.

Although the unfavourable climate in 2021 & early 2022 continued to reduce cane yields in 2022–2023 in Brazil, we anticipate higher-than-average cane crush & sugar production for the year. Furthermore, the mills have increased their mix of sugar production due to recent adjustments to Brazil's fuel tariffs and Petrobras' price cuts on gasoline.

Sugar prices are expected to increase steadily between 2022 and 2023

In the second week of November, baseline sugarcane ethanol pricing in the world's largest producer Brazil reached four-month highs, motivating farmers to use sugarcane for blending biofuels rather than crushing sugar, reducing the amount of sweetener. Investors were still determining if Brazilian President-elect Lula would raise the cap on fuel prices in January, which would support costs even more. Authorities in another country lowered their export quota for the 2022–2023 marketing year, further squeezing the world supply

Highly refined cane sugar is currently available in the Northeast & West Coast for 52 per lb f.o.b., up 24% on a year before, whereas beet sugar is available in the Midwest for 42 per lb f.o.b., up 15%. Cane sugar prices are currently close to the point at which "high-tier" imports, which are sugar imports from the international market that are subject to significant penalties intended to deter imports over tariff-rate quota levels, are permitted or even encouraged. Compared to the 14.7% ending stocks-to-use ratio predicted by the US Agriculture Department for 2021–22, current prices are high. The ratio partly considers the record-high beet sugar and overall sugar production in 2021. The USDA is anticipated to lower Mexico's export cap there in March WASDE to bring the proportion back to 13.5%.

Chinese Sugar Consumption Lowest in 9 Years?

Due to steps to prevent COVID-19 and slower economic growth, China, the world's second-largest consumer of sugar after India, would consume the least amount in nine years in 2022, according to research by analyst Czarnikow.

According to Czarnikow, a business that also offers supply chain services, China will continue to consume or less 15 million tons of sugar this year due to severe restrictions on people's freedom of movement in major cities because of coronavirus outbreaks that lower demand for sweetened foods and beverages like candy and cakes.

According to recent reports, China consumed fewer than 15 million tonnes of sugar in a calendar year in 2013, and production and imports of sugar are predicted to decline by 2.1 million tonnes between 2021 and 2022.

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