Wednesday, January 27, 2010

In the sugar markets, turns out Homer Simpson was shockingly prescient

"In America, first you get the sugar, then you get the power, then you get the women."
-Homer Simpson
Sugar Futures hit a 29 year high Monday, which I probably don't need to tell you, is totally insane. (No, it's not insane that sugar prices are up, it's just the phrase: "29-Year High".) Sugar prices were basically sideways for all of 2008, bouncing around 15¢ / pound, followed by a slow but rather unremarkable build through the middle of 2009 (along with every other market on the planet) then a couple bumps to up around 24¢ / pound in August, where it began moving back down, only to all of a sudden skyrocket over the last couple weeks to more than 30¢ / pound intraday on Monday. As of this writing, prices have come back down a bit to 29.3¢ / pound.
The sudden price move is the direct result of Indonesia expecting a "530,976 metric-ton production shortfall", as well as an atypical monsoon season in India (the world's second largest sugar producer and single largest consumer on the planet) that turned them from a net exporter of the crop, which they are historically, to a net importer, which they almost never are. (Source: We've also seen declines in sugar production from the world's top exporter Brazil, and greater sugar demand than ever before from emerging markets such as Pakistan and China.
In other words, let me put on my reporter hat, ahem: Further exacerbating the sugar situation are declines in sugar supply everywhere in the world, coupled with increases in sugar demand everywhere in the world.
I've quickly pulled some figures from the USDA's most recent global sugar report (released November 2009) and reprinted them below. Remember that this does not take into account more recent news, like Monday's announcement regarding Indonesia (all data in thousands of Metric Tons):
RegionYearTotal ProductionTotal ImportsTotal ExportsTotal Use
North America2007/200813,3744,01993816,324
South America2007/200839,1171,48820,95918,568
Not the most obviously elucidating snapshot I realize, but the major thing to notice is the decrease in sugar output from Asia, coupled with its aggregate import/export flip.
I don't know enough about the cycles or other price drivers in the sugar market, but just going on this data I would seriously think twice before selling any sugar contracts at all; a 29 year high may be just the beginning.
Looks like Homer was right:

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