Indiana Grain Company, LLC

Posted: 03/03/10

By: tomgrisafi

Sugar was a fascinating product to trade and even just observe last year. But we at Indiana Grain have taken note of the shifting momentum of sugar so far in this new year. And it just may be that the knee-jerk reaction by some countries to the past year's explosive sugar prices will start to take the shine off what had been the best sugar market for twenty years.

But if a substantial decline in sugar is, indeed, forthcoming, the policy responses from some countries to help ease the pressure on consumers or help farmers capitalize on the prices will be behind a fall in coming months. Early this year, for example, Brazil reduced its mandatory blend of ethanol (produced from sugar-cane) from 25% to 20% until the middle of this month to help reduce the upward pressure on prices to Brazilian consumers while enabling sugar cane mills to benefit from the better prices.

Similarly, in the European Union there are plans to increase the limit on sugar exports to meet its export subsidy volume limit. Indian farmers will also be paid more money to produce sugar in the coming year following a production shortfall, and sugar import duties up to seven million tons have been removed.

For now, the path seems patently clear. The forecast for the world sugar indicator price is that it will decline from these amazing highs as world carryover stocks of grain start to recover. But as we will almost certainly observe, the pullback in the price of sugar won't be a completely sweet experience for those who didn't anticipate (or still don't expect) the price drop to actually take place so soon after the price run-up of 2009.

Source: Bloomberg, The Resgiter, Reuters

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