What's the Deal with Sugar Prices?

Taking a look at the most recent Sugar & Sweeteners Outlook there's some interesting things happening with sugar production in Mexico.

As expected, sugar production/output from Mexico was down last month. What was a little unexpected was how much. According to the USDA's Sugar & Sweetners Outlook, production was down 330,000 metric tons.

Interestingly, even though production was down that much, the USDA lowered its forecast of Mexican sugar imports just 139,000 metric tons (from 449,000 to 310,000 metric tons.) Given the sizable drop in production, something doesn't seem to add up here, as the sugar has got to come from somewhere, especially given that there's no mention (or signs otherwhere) of declining consumption.

Meanwhile, looking at the production side, comparing 2008-2012, here's what the USDA reports:

Year	Area Harvested1	Sucrose Recovery2
2011-12	124,366	9.91
2010-11	132,486	10.95
2009-10	105,220	9.93
2008-09	109,513	11.18
1 Interim (hectacres/ha), through 1st week of January 2 Interim, through 1st week of January

What's the bottom line here? While it's still early to say, especially given the changes caused just by weather changes, it looks like Mexican farmers are having to harvest a significantly larger area to reach their output levels.

Meanwhile, the actual productivity of the sugar itself (i.e. the sugar recovery) is becoming less efficient and dropping. All-in-all, it's an unsustainable trend that would lead to higher wholesale sugar prices if it continues. That said, it's really just too early to say, especially given how much sugar the countries of the world now import and export from one another.

Labels: sugar prices, sugar production, wholesale sugar