Global sugar prices rallied as drought conditions in Brazil have the market bracing for less sugar cane.
On Monday, sugar for February delivery on the Intercontinental Exchange finished up 6% at 12.65 cents a pound.
The gains come after sugar futures had slumped through December and hit a three-month low of 11.69 cents a pound on Jan. 3.
Areas in the south and northeastern portions of Brazil, where sugar cane is typically grown, have been afflicted with only a fraction of the precipitation normal for this time of year, according to data from the National Centers for Environmental Prediction compiled by Futures International.
As a result, the market is expecting sugar-cane production in those regions to be stunted. According to the U.S. Department of Agriculture’s Foreign Agricultural Service, total Brazilian exports for the market year 2018-19 are estimated at 19.6 million metric tons, which would be the lowest level since 2007.
Meanwhile, global production for the marketing year is estimated at 186 million tons, down by 9 million tons from last year because of the decrease foreseen out of Brazil.
According to Pablo Gimenez, senior vice president of Latin American markets for INTL FCStone, Monday’s jump in sugar prices was also influenced by factors including upticks in the oil and equity markets. However, it is the dry weather conditions that stand to underpin higher sugar prices in the longer term, he said.
“Over the last few years, we’ve seen low investment to sugar,” Mr. Gimenez said. “We’re vulnerable to weather.”
Globally, sugar production still exceeds consumption, according to the USDA. However, should Brazil’s drought conditions worsen, a resulting deficit could eat into world supply—causing prices to jump.
“Long term, the drought doesn’t look good,” Mr. Gimenez said.
