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The Yin & Yang of steady sugar prices... for now |
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by: Bill Reavis
January 25th, 2012
Sugar prices in the US came under the national spotlight recently when a discussion on subsides was brought up during Monday’s (1/23/12) presidential debate in Florida between two Republican hopefuls: Newt Gingrich and Mitt Romney. They both called for the end to sugar subsidies by the US government.
Senator Kent Conrad (D-N.D.) has a different view: “The comments show the candidates are spreading ‘misinformation’ about a vital program that does not subsidize the sugar industry.”
Under the terms of the 2008 farm bill, the sugar program operates at no cost to taxpayers and gives the U.S. Department of Agriculture the ability to: limit foreign imports of sugar; control how much sugar American farmers are allowed to sell; and shift surplus imports to ethanol production, in an attempt to stabilize prices. (Dow Jones News Wire 1/25/12)
Without it, Conrad said, the nation would be "swamped" with foreign sugar that is subsidized by foreign governments. Further, he contends that all nations with a strong sugar industry have a sugar program. "We have one too, but we have one that doesn't cost the taxpayers a dime."
The question WWFS asks is, "What would sugar prices be if we didn’t have these subsides?" Our guess: much lower.
As for the current sugar market, it is stuck between a rock and a hard place. The Bearish view is that sugar prices will decline in 2012 due to increased stocks, as Brazilian shortfalls are counterbalanced by increased output from other main producers. Brazil has received rains recently after a dry spell in South America which will improve the prospect for top grower Brazil's 2012-13 harvest, which along with a strong supply out of Europe will likely limit the upside near term.
Cash premiums for sugar in Thailand, the world's second-largest sugar exporter after Brazil, will likely face more downward pressure in the coming weeks as the country's sugar cane crush gathers pace even as more sugar exports become available from India. (Dow Jones New Wire 1/25/12)
As for the bullish view,there is increasing Brazilian demand for U.S. ethanol. There is also a good chance that Brazil’s sugar crop will play a much greater role in the country's energy policy and a lesser one in the world’s sugar market. This should place firm support under the world sugar market and bring a large amount of investor based funds into the sugar market. Theoretically, this would put a floor under this market. The question is, how low is that floor?
One thing is clear; sugar is playing a major roll in world economic activities. Especially with emerging nations being able to afford more of a sweet tooth and ethanol playing an ever increasing roll in the energy market, world production has never been higher. Governmental influences will have great effects on the direction of this market.
The Survival Plan and Diversified Commodity Basket are both currently short sugar.
Sugar Chart
Regards,
Bill Reavis
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239-221-8873
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