Prices for sugar are rising due to damage to crops in Brazil, global production is decreasing, and the consequences are significant.

Prices for sugar have reached a four-year high after reports confirmed damage to sugar cane crops in Brazil. This information was published by Reuters and reported by Agrotrend.ru.

In June and July, Brazil, the world's largest sugar producer, experienced unusually cold weather.

Data from the company Unica shows that sugar production in the central-southern region of Brazil decreased by 11% to 3 million tons in the second half of July.

Initially, crops were damaged due to the worst drought in the last 90 years, followed by the cold weather.

Market participants expect low yields, leading to a 7% increase in sugar futures on the ICE Exchange in New York.

According to Unica, sugar cane yields per hectare in July have already decreased by 17.9% compared to last year.

The sugar production season in Brazil, which accounts for about 40% of global sugar trade, will end earlier than usual, potentially causing difficulties in global sugar supplies.

Marina Sidak, a professor of statistics at Plekhanov Russian University of Economics, explains that since 2016, the Russian sugar market has become import-independent and self-sufficient. Thus, Russian consumers no longer need additional volumes of raw sugar or white sugar.

By the end of 2020, the government began actively regulating the domestic sugar market, the expert emphasizes. Price-fixing agreements on sugar, with limited duration, alleviate market pressure, but the state continues to influence the sugar industry.

When Russia enters the global market, the price of Russian sugar should be competitive, that is, lower. Sidak believes that rising global sugar prices will benefit Russia. The reduction in sugar production in Brazil will also have a positive impact on other producers, such as India and Thailand, which could fill the missing volumes in the global market.

Given the price increase and the decline in global sugar production, demand for this product, according to Sidak, may significantly increase, creating ideal conditions for export. However, in the next few years, Russia will not be able to achieve export volumes as in the 2019/20 season (1.5 million tons), Sidak notes.

Sidak points out the cyclical nature of the global sugar balance. Usually, the world market experiences a deficit for no more than two years, while surplus periods range from three to five years.

Weather conditions and unfavorable economic circumstances can cause a sugar market deficit, leading to high prices. During these times, farmers reduce planting areas. In subsequent years, sugar production expands, and prices fall again, promoting industry investments and eventual surplus.

Therefore, every two years, there is a shift from deficit to surplus in the global sugar market, explains Sidak. This pattern can be used to forecast sugar price levels in the future.

It is worth noting that Brazilian authorities had warned of the worst drought in decades. Weather conditions also affected the coffee harvest in Brazil.