DROUGHTS through key sugar producing regions in south-east Asia associated with the recent El Niño event have sent sugar markets soaring in recent months.
India and Thailand, both big sugar producing nations, suffered severely from droughts last sugar season, with well below average production the result.
easyMarkets senior dealer Andreas Tjahja says sugar values have increased 31.9 per cent since hitting their lows in February.
There was a sharp rally at the end of last week, but this has been followed by falls in this week’s markets, with the trade trying to assess the current market situation.
Unusually, CBA analyst Tobin Gorey said the current market features prices near contract highs and spreads near the lows, which he said was creating unease among the trade.
He said fundamental factors may allow the market to find its level, pointing to wet weather in Brazil as a potential yield constraint there.
Mr Tjahja said as was always the case in sugar, India loomed as critical.
He said India, usually a sugar exporter, would this year need to import sugar to meet demand.
India is the world’s largest consumer of sugar.
And along with South American concerns, he said the industry was watching the situation regarding the 2016-17 season, which is also looking dry through large tracts of Asia.
The political instability in Brazil is also having an impact on sugar values.
Mr Tjahja said Brazilian mills were suffering due to the volatility in the Brazilian currency, the real, and were exposed to significant debt.
The Brazilian government is also looking at manipulating sugar stocks, approving a proposal to reduce excess stocks to support low prices, although this may soon be revoked according to sources in Brazil.
From the Australian perspective, Mr Tjahja said the recent price rise, combined with the dip in the Aussie dollar off recent highs, was good news.
“Australian farmers benefit from higher sugar prices and a lower Australian dollar,” Mr Tjahja says.