As part of our 2019 forecasts we look into the price of sugar. Based on supply/demand factors, as well as our inflation forecast 2019 and the price chart of sugar we try to conclude with a sugar price forecast for 2019.
Before we look in the details we want to note that doing a sugar price forecast is a challenge. There are multiple factors that determine the price of sugar, one of which being supply/demand. Moreover, sugar is subject to the volatility which is typical for commodities markets.
Our sugar price forecast for 2019 should really be taken as an attempt.
Sugar price forecast 2019: supply/demand factors
Supply/demand factors favor a falling sugar price on the long term.
As per this article on sugar supply/demand factors “sugar’s supply surplus will eventually push prices so low that production takes a hit. Sugar prices may see a rise to around 15 cents sometime in 2020 as the cost of production for efficient producers such as Brazil and Thailand stands at roughly 12 cents to 14 cents a pound. Prices will, of course, go up as producers go bankrupt, but that is a very slow process.”
World sugar production is forecast to reach a record level of 187.6 million metric tons in the 2017-18 marketing year, according to the United Nations’ Food and Agriculture Organization, or FAO. That would mark an increase of just over 11% from the previous year.
The point is a global supply surplus.
“The substantial expected expansion in world sugar output means that production is set to surpass utilization by as much as 17 million [metric tons], the largest production surplus in history, leading to significant accumulated inventories, in both importing and exporting countries,” the FAO wrote in a biannual report published in July of this year.
So supply/demand factors are not supportive of higher sugar prices, making for a bearish bias in our sugar price forecast 2019.
Sugar price forecast 2019: expected inflation
Interestingly, the price of sugar has provided a really strong leverage during inflationary periods in the last 2 decades.
As per our inflation forecast there should be a mildly rising rate of inflation in 2019. This should be supportive for commodities as an asset class. However it will not lead to a giant rise in commodity prices, certainly not sugar which was always fast in reacting on inflation expectations.
If we take 2016 as an example there was a giant rally in the price of sugar. However, this came after a major bottom in inflation expectations which largely may explain the strong rise in the price of sugar. Moreover, there also was a supply deficit more than a supply surplus back then.
The years 2010 and 2011 were somehow similar in nature when it comes to inflation expectations.
Today, we don’t see this potentially strong reaction of the price of sugar on inflation expectations. This, of course, may change depending on how markets react in the next few weeks and months. As said before the exact consequences of the End Of 40-Year Bull Market In Bonds. One potential scenario is a rising rate of inflation which may turn our mildly inflationary forecast into a wildly inflationary forecast. It’s not a given that this will happen but it may be one of the outcomes, and, if so, will strongly impact our sugar price forecast for 2019.
Sugar price forecast 2019: the chart
Last not but not least, what does the chart of the price of sugar suggest?
We are looking for long term patterns and dominant trends on the chart.
The price of sugar has broken out, technically, after this summer. However, there seems not be any follow through which makes the breakout doubtful.
Based on the current trends on the price chart of sugar we see 2 scenarios for 2019:
- If sugar rises above 14.00 it will move to 20.
- As long as it remains below 14.00 we see it testing its recent lows and consolidate between 11 and 14.
In other words we consider 14.00 the ‘line in the sand’ for our sugar price forecast for 2019.
If we combine the supply/demand factors hinting at oversupply, our mildly inflationary environment and this weak breakout we certainly favor scenario 2 outlined above. In other words we have a neutral to mildly bearish sugar price forecast for 2019.
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