Violent Weather Patterns Could Keep Sugar Prices Elevated

After an expensive Halloween, sugar prices may not relent through the rest of the holiday season. Violent weather patterns in various countries could limit supply, keeping sugar prices elevated.

The primary culprit has been the ongoing El Niño weather effect that has been racking various parts of the globe with dramatic climate changes. Depending on where you are, the weather patterns can vary from dry heat to extreme rainfall. In the case of Brazil, it’s been more of the latter.

The largest economy in Latin America has been witnessing heavy rain, which has made it difficult not from a production standpoint, but more of a logistical one.

“For the largest, Brazil, production is not the problem,” reported the Financial Times. “This year its output has climbed 10-15 per cent compared with two years ago. Getting sugar out of the country is tough, however. Heavy rain plus congestion at important ports such as Santos, near São Paulo, is squeezing world supply.”

Lack of production leading to lower supply has been an issue in certain parts of Asia. In Thailand and India, a lack of rainfall is negatively affecting sugar cane yields this year.

“Dry weather has slashed sugarcane yields. Number two producer India has curbed its exports,” the FT report said further. “Forecasts vary, but one from the US Department of Agriculture has India’s exports falling again in the year to September 2024, down by almost half over two years.”

When you combine a lack of production with increased demand, it makes for an explosive formula for increased sugar prices. That’s exactly what we’re seeing today in all parts of the globe.

“Meanwhile, demand in emerging economies has not stopped. Countries such as Indonesia and Egypt have a sweet tooth, plenty of festivals that revolve around sugary treats and fast growing populations, say experts at Marex,” the report added. “Strong demand in the Middle East and south-east Asia should mean a supply deficit of 3mn tonnes of sugar worldwide this year. That gap is not expected to close up before 2025.”

A Bullish Option for Sugar Exposure

If elevated sugar prices persist, a bullish option is the Teucrium Sugar ETF (CANE). It’s the only sugar ETF on the market. It’s accessible to investors who want a convenient way to get exposure to sugar, whether it’s to hedge against inflation and/or to diversify a portfolio.

That inflation hedge component is especially crucial in the current macroeconomic environment given the uncertainty of when the U.S. Federal Reserve will loosen monetary policy. The markets fully expect the Fed to eventually lower interest rates, especially after the recent rate pause. Nonetheless, there’s no determining exactly when inflation’s extended stay will come to an end.

For more news, information, and analysis, visit the Commodities Channel.