Global Sugar View by McDougall – Episode 16

Inflation hits sugar too!

The last peak in sugar was back on November 18th, when the March contract reached 20.69, and then fell to 18.46 within two weeks. Could the market be setting itself up for a repeat?
My argument would be that the picture has changed since then.
Let’s look at the evolution of other markets since last November.

Crude oil was $79.01. It is now 106.95. Increase of 35.36%
Gasoline was 238.40. It is now 338.14. Increase of 41.84%
Heating oil was 229.43. It is now 385.48. Increase of 68.02%
European nat gas was 19,682. It is now 95.62. Increase of 385.85%

The Brazilian Real was 5.566 It is now 4.7014 Increase of 18.39%
Hydrous parity was 20.42 It is now 24.72 Increase of 21.06%
Anhydrous was 22.58 It is now 24.33 Increase of 7.75%
ESALQ sugar was 559.45 It is now 602.79 Increase of 7.75%
Fertilizer prices have risen, freight has gone up, (Panamax freight was 2336, it is now 3042, an increase of 30.22%) labor costs, because if the Real has also gone up so has labor costs within Brazil in USD terms.

A mill selling sugar back in November looked attractive, but inflation is on the rise and very few are willing to bet it has peaked already. The US CPI number was 1.3998% back in January of 2021. Sugar was trading around 16 cents back then. In November it had risen to 6.809% and now in March it is 8.5424%, the highest since December of 1981. Santander Bank in Brazil raised its Brazilian inflation number for 2022 to 7.9% from 6%. The reality is that many in the world became used to practically nonexistent inflation numbers and now they are back with a vengeance. Has the inflation mentality reached sugar yet? We think it has.

This could explain some of the rise in the white premium and the expiry of the May contract. Energy costs especially for European refineries that use nat gas as a power source have really shot up. If we look at the replacement cost of sugar now, then 20 cents looks much less lofty than it did back in November.

We would also say that sugar, like other commodities, is probably being influenced by inflation psychology. This means sellers are thinking that if they wait, prices will increase and if you are a buyer, then you better buy now or prices will increase. This is a big change since the financial crisis back in 2008, and really not seen since the 1980s.

How will this influence sugar going forward? We shall see.


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