Sugar Highs and Lows

12/15/16
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Sugar, an important agricultural crop, commodity, and food, is predominately derived from sugar cane and is gSugar Cane Field-1.jpgrown by large and small scale farmers around the world. Though sugar is commonly recognized as a sweetener or cooking aid, it actually has many other uses. Sugar can be a source of energy, a medicinal aid, a fortifier, and, for many around the world, a source of income.[1] As sugar is processed in almost every food category, many people around the world are concerned with the price of sugar and its economic impact from the small holder farmer through production. The following post will look at the projected fluctuation of global sugar production and then take a deeper dive into India, the second largest producer of sugar in the world. 

Global Sugar Production

In 2017, sugar production is projected to be 171 MMT, while consumption is projected to be 174 MMT.[2] This is the second year in a row that consumption has outweighed production on a global level.[3]

Typically, when demand (consumption) outweighs supply (production), the price of a commodity will increase. At aWhere, we monitor global production of sugar and project price, based on what we see in our weather data. We have been projecting and tracking price increases since the start of 2016. We anticipated increases from 11-12 cents per pound to as high as 23 cents per pound in October 2016, and at the price peak shown below, sugar prices were at 23.81 cents per pound.

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Figure 1: The Bloomberg commodity chart for sugar over 2016 shows a staggered increase in futures prices until early October where prices began to decrease to today’s price of 18.15 (12/14/16 11:45am MST).[4]

Sugar Production in India

As producers of sugar around the world try to keep up with increasing demands in consumption, India is particularly interesting, considering the country is the largest consumer and second largest producer of sugar. For the first time since 2010, sugar production in India will fall below consumption (See Figure 2). The country is projected to produce only 88% of the sugar that the country is projected to consume in 2017, as can be seen in Figure 3. Due to in country production exceeding internal consumption by 2% to 18% from 2010 to 2016, India was able to export more goods or increase storage stockpiles in previous years, but in 2017, the country is projected to end the year approximately 3,355 MMT below stock.[5] That figure takes into account projected production, consumption, imports, and exports.[6]

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Figure 2: From the USDA FAS shows that India’s sugar consumption will exceed its production for the first time since 2010.

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Figure 3: Corresponding statistics to India’s historical relationship with sugar

What caused this fall in India’s supply? Production has been impacted by multiple months of significantly less rainfall than normal, coupled with much warmer temperatures. Figure 5 below details the particular areas of stress in the Maharashtra and near the Karnataka regions where the USDA FAS pointed out production was lower than expected. For India, the last couple of months have been unfavorable for sugar production with drought conditions prevailing over much of the sugarcane growing area.

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Figure 4: P/PET is a crop stress indicator, and over the months of October and November, parts of India’s sugar producing areas, outlined in black, experienced severe stress due to decreased rains and hotter temperatures.

Sugar Consumers in India

India is the world’s largest consumer of sugar by over 8 MMT, and it interesting to note that while overall consumption is increasing, on a per person basis, India consumes little sugar. Research firm Euromonitor analyzed over fifty countries to understand which consume the most sugar at a per person level. As one can see in Figure 3, India is the overall lowest consumer, where people eat about 5 grams per day on average. By comparison, the United States comes in at number one, where people eat 126 grams per day on average.[7]

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Figure 5: A graphic from Euromonitor suggests that India consumes little sugar on a per person basis.

According to the World Bank, there were 1.3 billion people in India in 2015, which is almost 18% of the world’s total population.[8] This expansive population could explain why the overall consumption is high, while the per person consumption is low. If individual consumption were to rise, the sugar industry will become even more critical to the Indian economy.

In order for that market and industry to expand, however, the sugar crop needs a favorable environment to grow. In 2017 India is not anticipated to be able to cover their demand of sugar with their own supply, and from a global perspective, the world’s sugar supply is expected to be lower than demand. At aWhere, where we monitor the agricultural earth’s weather every day, we will continue to watch the world’s sugar producers. aWhere’s information serves to deliver unprecedented insight into supply side production estimates and all major agricultural commodities.

[1] http://www.wsro.org/AboutSugar/FactsaboutSugar.aspx

[2] https://www.statista.com/topics/1224/sugar/

[3] https://apps.fas.usda.gov/psdonline/psdQuery.aspx

[4] https://www.bloomberg.com/quote/SB1:COM

[5] https://apps.fas.usda.gov/psdonline/psdQuery.aspx

[6] https://apps.fas.usda.gov/psdonline/circulars/sugar.pdf

[7] https://www.washingtonpost.com/news/wonk/wp/2015/02/05/where-people-around-the-world-eat-the-most-sugar-and-fat/?utm_term=.f5e7f4df0358

[8] http://data.worldbank.org/indicator/SP.POP.TOTL

 

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