Sugar Markets and Cash Price information at Commodity

Basis
Sugar is one of the oldest traded commodities in the world. The commodity has had a large
influence in economies and politics worldwide from the 15th century onwards. Presently sugar
is one of the most regulated commodities being subject to quotas, subsidies and import duties
in almost every country.

Sugar come in two distinguishable groups; raw sugar and refined sugar. Sugar can be
produced from sugar cane or sugar beet. Cane sugar accounts for 80% of all sugar produced
in the world, 20% comes from sugar beet. Refined sugar from beets and cane is seen as the
same, consequently there is no difference in sugar prices between the two.
A sugar cane plant will grow back many times after it is first cut. Sugar cane is typically only
replanted every six or seven years. The initial investment of planting sugar cane is very high
but variable costs after that are relatively low. The downside to this 7 year cycle is that farmers
do not have a lot of flexibility with regards to planting other crops when sugar prices are low.
What we see is that output is only minimally reduced when sugar prices fall below breakeven
levels.
Brazil is by far the largest producer of sugar in the world, producing around 36 million tons per
year. The country accounts for 25% of the worldwide production and about 50% of world
exports. Consequently, Brazil is the most important market for sugar prices in the physical
market. India is the second largest producer with around 27 million tons and the EU produces
around 16 million tons.
Sugar in Brazil and India is produced from sugar cane, while European sugar is produced from
sugar beet. Around 70 countries in the world produce sugar from sugar cane, 40 from sugar
beet, and 10 from both. Other important sugar producers are China, Thailand and the United

States. The 10 largest sugar-producing nations produce around 75% of world sugar. These
countries are the focal point for determining worldwide sugar prices.
Since 1990 the consumption of sugar has been growing at a rate of around 5% per year in
Asia and the Middle East and 4% in Africa. Total world consumption at the moment is around
170 million tons, which is around 25kg per person. The ten largest importers of sugar consume
around two thirds of the worlds total consumption. While consumption of sugar has gone up,
sugar prices in recent years have been under pressure because of large supplies in the world
market.
The largest importers of sugar are China, Indonesia, the US, and Europe. Sugar is a highly
international commodity and most sugar prices in the world are quoted in USD. The
international trade in sugar is around 20-25% of total world demand; this is high when we
compare it to other commodities in which trade is normally 10-20% of world demand.

In 2012 the total amount of sugar traded on the international market was 56 million tons. The
trade is expected to increase to 65 million tons in 2022. Presently, two thirds of all exported
sugar is raw sugar while one third is refined sugar. Of all the sugar traded internationally 90%
is sea borne.
In terms of export revenue, sugarcane is one of the most important crops for Brazil, together
with soybeans and coffee. Sugar prices have been falling faster than prices of the other
commodities, which have had a great impact on the industry.
Sugar Prices in Brazil
Brazil is the largest producer of sugar cane. The country produces almost 550 million tons of
sugar cane on a total of 1.6 billion tons worldwide. Almost 90% of sugar production takes place
in south-central Brazil. The state of Sao Paulo produces 60% of all sugar cane in the country.
The price of sugar cane is not solely related to sugar prices as more than 50% of sugar cane in
Brazil goes into ethanol. When sugar cane is harvested the first cane is generally used for
ethanol production because it is the quickest way to make money. This is needed in order to
meet urgent needs as well as well as pay off bills to suppliers.

Brazil has its own futures exchange for sugar prices on the Brazilian Mercantile and Futures
Exchange (BM&F). The contract for crystal sugar prices will be delivered at the port of Santos
and the contract is settled based on the Santos BM&F crystal sugar price index. The exchange
also has an ethanol futures contract on which domestic traders can hedge ethanol prices.
A Note on Ethanol Prices
Brazil has been a front-runner in the production of the biofuel ethanol for many years. Together
with the US, Brazil produces just short of 90% of all ethanol worldwide. Brazil is considered to
have the first sustainable biofuels economy. Ethanol works so well in the country because of
the favorable conditions for agriculture, cheap cane feedstock, and highly mechanized
production process. In 2014 the Brazilian government increased the mandate for ethanol in
gasoline to 27.5%, up from 25%.
Sugar Prices in Asia
In Asia there are three big producers of sugar cane; India, China and Thailand. India is the
biggest producer in the region producing around 27 million tons of sugar per year; China
produces approximately 14 million tons, and Thailand 11 million tons. While China is the
number 4 producer of sugar in the world the country, together with Indonesia, is also the
biggest importer of sugar at around 4 million tons per year. While these countries are the
largest importers of sugar they also have import quotas in place to protect sugar prices in their
local markets.

In Thailand there is yet another intervention system in place. The 1984 sugar cane act ensures
that profits of crushing sugar cane are equally split between the farmer and the miller. Of the
profit made at the end of the year 70% goes to the farmer and 30% goes to the miller. Upon
delivery to the cane mills the farmer receives an upfront payment calculated on a sugar price
calculated by the government. The advance payment should not be less than the expected
end of season average sugar price. If the advance payment was higher than the average at
the end of the year the difference is corrected in the following season.
Sugar Prices in Europe and North America
Europe and the United States are among the biggest importers of sugar as well as they are
sizable producers. Because the climate doesnt allow for sugar cane to grow in Europe, sugar
beets are the feedstock for sugar production. Europe is the largest producer of sugar beet

followed by Russia and the United States. In the US, sugar is being produced from beet as
well as cane.
Europe produces around 16 million tons of sugar per year and imports 3.5 million tons. The
United States produce 7.5 million tons and import 3 million tons. Both continents have
significant influence on sugar prices worldwide. Europe traditionally is a big exporter of refined
sugar; the continent is the fourth biggest exporter of the product after Brazil, Thailand and
Mexico.

Sugar cane in the US is grown in four states. Florida produces around 50% of all sugar cane in
the United States, Louisiana produces around 40% and the remaining 10% are being
produced in Texas and Hawaii. Sugar beet is being produced in colder climates with evenly
distributed rainfall. In the US the largest sugar beet producing states are Minnesota, Idaho,
North Dakota and Michigan. In the past sugar from cane was the largest type of sugar in the
United States in recent years beet has overtaken it and now supplies 55% of sugar.

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