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- CRB Fundamentals - 2008 Commodity Articles


The white crystalline substance called "sugar" is the organic chemical compound sucrose, one of several related compounds all known as sugars. These include glucose, dextrose, fructose, and lactose. All sugars are members of the larger group of compounds called carbohydrates and are characterized by a sweet taste. Sucrose is considered a double sugar because it is composed of one molecule of glucose and one molecule of fructose. While sucrose is common in many plants, it occurs in the highest concentration in sugarcane (Saccharum officinarum) and sugar beets (Beta vulgaris). Sugarcane is about 7 to 18 percent sugar by weight while sugar beets are 8 to 22 percent.

Sugarcane is a member of the grass family and is a perennial. Sugarcane is cultivated in tropical and subtropical regions around the world roughly between the Tropics of Cancer and Capricorn. It grows best in hot, wet climates where there is heavy rainfall followed by a dry season. The largest cane producers are Florida, Louisiana, Texas, and Hawaii. On a commercial basis, sugarcane is not grown from seeds but from cuttings or pieces of the stalk.

Sugar beets, which are produced in temperate or colder climates, are annuals grown from seeds. Sugar beets do best with moderate temperatures and evenly distributed rainfall. The beets are planted in the spring and harvested in the fall. The sugar is contained in the root of the beet, but the sugars from beets and cane are identical. Sugar beet production takes place mostly in Europe, the U.S., China, and Japan. The largest sugar beet producing states are Minnesota, Idaho, North Dakota, and Michigan. Sugar beets are refined to yield white sugar and very little raw sugar is produced.

Sugar beets and sugarcane are produced in over 100 countries around the world. Of all the sugar produced, about 25 percent is processed from sugar beets and the remaining 75% is from sugar cane. The trend has been that production of sugar from cane is increasing relative to that produced from beets. The significance of this in that sugarcane is a perennial plant while the sugar beet is an annual, and due to the longer production cycle, sugarcane production and the sugar processed from that cane, may not be quite as responsive to changes in price.

Sugar futures are traded on the Bolsa de Mercadorias & Futuros (BM&F), Kansai Commodities Exchange (KANEX), the Tokyo Grain Exchange (TGE), the London International Financial Futures and Options Exchange (LIFFE), and the CSCE Division of the New York Board of Trade (NYBOT). Options are traded on the BM&F, the TGE, the LIFFE and the NYBOT.

Raw sugar is traded on the CSCE Division of the New York Board of Trade while white sugar is traded on the London International Financial Futures Exchange (LIFFE). The most actively traded contract is the No. 11 (World) sugar contract at the CSCE. The No. 11 contract calls for the delivery of 112,000 pounds (50 long tons) of raw cane centrifugal sugar from any of 28 foreign countries of origin and the United States. The CSCE also trades the No. 14 sugar contract (Domestic), which calls for the delivery of raw centrifugal cane sugar in the United States. Futures on white sugar are traded on the London International Financial Futures Exchange and call for the delivery of 50 metric tons of white beet sugar, cane crystal sugar, or refined sugar of any origin from the crop current at the time of delivery.

Prices - World sugar prices on the CSCE No.11 sugar nearest-futures chart in 2007 trended lower into mid-year when they dropped to a 2-1/2 year low of 8.37 cents per pound. On the 8.37 cents low, sugar prices retraced 79% of the 4-year rally from the 5-year low of 5.27 cents posted in February 2004 up to the 25-year high of 19.73 cents per pound posted in February 2006. Sugar prices for the remainder of 2007 traded sideways to higher and ended 2007 at 10.82 cents, 7.9% y/y. Favorable growing weather and an expected surplus kept sugar prices depressed the first half of 2007, but sugar prices picked up the second half of the year due to increased demand from ethanol producers. With crude oil prices moving up into record territory throughout 2007, Brazil ramped up its ethanol production and took an increasing percentage of its sugar crop. Despite record global sugar production in 2006-07, global ending stocks dropped more than expected and a global sugar deficit is forecasted by 2008-09. As global use of biofuels increases, world sugar production will need to rise to satisfy strong demand.

Supply - World production of centrifugal (raw) sugar in the 2006-07 (latest available data) marketing year (Oct 1 to Sep 30) rose +7.2% to 155.166 million metric tons. That is a new record high. The world's largest sugar producers in 2006-07 are Brazil with 20% of world production, India with 16%, and the European Union with 11%. U.S. centrifugal sugar production in 2006-07 rose +5.0% to 7.727 million metric tons. World ending stocks in 2006-07 rose +14.7% to 33.193 million metric tons, finally moving higher after declines in the past three years. The stocks/consumption ratio rose to 22.7% in 2006-07 to relieve the tightest situation since 1994-95. U.S. production of cane sugar in 2007-08 rose +7.1% to 3.735 million short tons, but beet sugar production fell 9.6% yr/yr to 4.502 million short tons.

Demand - World domestic consumption of centrifugal (raw) sugar in 2006-07 (latest available data) rose by +2.3% yr/yr to 146.037 million metric tons. U.S. domestic disappearance (consumption) of sugar in 2007-08 fell by 1.0% yr/yr to 10.420 million short tons. The latest available figures show U.S. per capita sugar consumption in 2005-06 at 63.4 pounds per year, which is only about two-thirds of the levels seen in the early 1970s.

Exports - World exports of centrifugal sugar in 2006-07 fell -5.9% yr/yr to 45.698 million metric tons, which was down from the record high of 50,691 million metric tons posted in 2005-06. The world's largest sugar exporter is Brazil, where exports in 2006-07 rose +14.4% to 19.550 million metric tons and accounted for 41% of world exports. The next largest exporters are Thailand with 9% of world exports, Australia with 8%, and India with 4%. U.S. sugar exports in 2007-08 fell 33.3% yr/yr to 250,000 short tons. U.S. sugar imports in 2007-08 fell 7.1% yr/yr to 1.889 million short tons, down from the 23-year high of 3.443 in 2005-06.

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