RAW SUGAR AND COCOA PRICES REACH NEARLY 10-YEAR HIGHS – THE SMART CUBE COMMENTS
Prices of raw sugar and cocoa touched 10-year and seven-year highs respectively in April 2023, The Smart Cubereports, due to tight supply and rising demand for both commodities.
Looking ahead at sugar pricing, the commodities output is projected to drop in key producing countries such as India, Thailand and China. Output in India, which is the second-largest sugar producer, is likely to fall 5 per cent Year-Over-Year (YOY) in the marketing year 2022/23. In China, the top sugar consumer, its output is estimated to drop 6.3 per cent YOY.
Meanwhile, according to the International Cocoa Organisation, the cocoa market is also expected to witness supply deficit as global cocoa ending stocks are forecasted to fall 3.5 per cent YOY in the marketing year 2022/23. For example, Ivory Coast, the leading cocoa producer, is projected to witness a 25 per cent YOY fall in its mid-year cocoa crop.
Nidhi Jain, associate specialist at The Smart Cube, comments on what has caused the prices of these commodities to surge, as well as the impact this is set to have on the confectionary industry:
“Sugar output has largely been impacted by variable weather conditions. In India, the likely fall in sugar production for the marketing year 2022/23 can be attributed to lower yields, as the key producing states were affected by unseasonal rain. In turn, this saw lower cane availability, causing early closure of sugar mills in the country. Meanwhile, sugar output in China is estimated to drop due to dry weather in the key sugarcane-producing province of Guangxi. Although Brazil is expected to witness a bumper crop this year – up 15 per cent YOY – ongoing logistical bottlenecks and supply chain issues are restricting sugar shipments from the country. Furthermore, rains have delayed sugarcane crushing in the country.
“Looking at cocoa prices, these are projected to witness a fall owing to hot and dry weather in cocoa-producing countries, such as Ivory Coast. Cocoa bean arrival from farms to Ivory Coast ports fell 4.6 per cent YOY from 1stOctober to 16th April. Additionally, crop quality in West Africa may be jeopardised due to a lack of fertiliser and pesticides availability as continued sanctions on Russia – the largest fertilisers exporter – has limited exports.
“Energy prices are also expected to rise which could sustain the price hikes, particularly regarding sugar. A bullish price forecast for Brent crude oil prices amid supply uncertainty following OPEC+ members’ surprise production cut of 1.16 million b/d (from May until the end of 2023) may help the upward trend in sugar prices, in addition to the limited supply of sugar. A rise in Brent crude oil prices encourages cane diversion towards ethanol production and restricts sugar supply. Furthermore, higher Brent crude oil prices will also increase transportation costs.
“As sugar and cocoa form key ingredients for most confectionery items, price increases for these ingredients are anticipated to affect input costs of confectionery products, increasing the cost for consumers. For instance, sugar accounts for around 7 per cent of the total raw material cost in a chocolate muffin, while cocoa’s cost share will be approximately 20 per cent.
“Short- to medium-term supply constraints are anticipated to keep cocoa prices high, while sugar prices may drop when the Brazilian crop enters the market in the next one to two months, although sugar prices will still be high compared with the historical averages.”
If you would like further comment, or to speak to Nidhi about what has caused the rise in price of raw sugar and cocoa, and when the prices may begin to retreat from their current highs, please do get in touch.