Sugar is a type of carbohydrate that is commonly used as a sweetener in food and drinks, from baked goods and desserts to soft drinks and sports drinks. Chemically, sugar is a simple carbohydrate that comes in many different forms, including glucose, fructose, and sucrose. It is naturally present in many foods, including fruits, vegetables, and dairy products.
The most common form of sugar used in food and drinks is sucrose, which is a combination of glucose and fructose. Sucrose is extracted from sugarcane or sugar beets, and then refined and processed into various forms, such as granulated sugar, brown sugar, powdered sugar, and molasses.
Governments subsidize sugar prices to encourage production and supplies. Yet, inflation makes commodities more expensive. Labor, energy, fertilizer, and transportation costs have increased, creating a bullish trend for sugar.
Brazil is the leading free-market sugarcane producer. U.S. futures trade in U.S. dollars, but labor costs in Brazil are in Brazilian real. The real has recently strengthened against the dollar, putting upward pressure on sugar prices.
Also, sugarcane is the primary ingredient in Brazil’s biofuel production. Higher gasoline prices increase ethanol demand and prompt sugar mills to divert more cane crushing toward ethanol production rather than sugar. This curbs sugar supplies and creates a bullish trend that increases sugar prices.
Another bullish factor for sugar is reduced production in Europe. The European Association of Sugar Manufacturers recently announced that the European Union’s 2022/23 sugar output would be 7% lower than last year. Hence, supply concerns lead to higher prices for the everyday European consumer.
Sugar also has support from concerns that changing weather patterns could undercut global production. The U.S. Climate Prediction Center has said there’s a 61% chance we’ll see an El Nino weather pattern in the second half of this year. If the new El Nino prediction comes through, it could bring heavy rains to Brazil, negatively impacting sugar crop production for another bullish run.
On the date of publication, Andy Mukolo did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
