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Sugar glut: sugar gets cheaper in Russia amid record rise in world prices

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Market prices for white sugar in the world have reached the highest level in the last 11.5 years. On Wednesday, April 12, during the trading on London’s ICE exchange the cost of May contracts for the sweet product delivery rose by 0.6% – up to $ 706.9 per ton. The last time such a high value could be observed back in October 2011.

Since the beginning of 2023, sugar has risen by 27.5% on the international market. Experts attribute the observed dynamics to the news about the reduction of supplies from India, Pakistan, Thailand and China.

“Production of raw materials in these countries is reduced due to both climatic and economic factors. The world balance of sugar is a dynamic process, and a decrease in production by at least one of the major market players always leads to price fluctuations,” the leading expert of the Institute of Agricultural Market Conditions (IKAR) Evgeny Ivanov explained to .

In addition, the recent cost rise in oil could also have a certain impact on sugar prices, the analyst did not rule out. Thus, after the decision of the OPEC+ alliance to reduce production of hydrocarbons, the price of energy raw materials of the reference brand Brent has increased by more than 9% since the beginning of April and is now near $87 per barrel.

According to Evgeny Ivanov, since the 1970s, when oil prices went up and gasoline prices went up as a consequence, some countries started using sugar cane more actively to produce ethanol, a cheaper fuel. In this case, the food market may not receive enough sugar, which ultimately leads to higher prices for the product.

“Western European countries sometimes resort to such measures, they have appropriate plants for this purpose. Nevertheless, it is worth noting that oil prices are still relatively low, so the ethanol factor in the sugar market is not the main one now,” Ivanov added.

Interestingly, against the backdrop of global sugar prices, its cost on the Russian shelves shows a more restrained trend. According to a report released Wednesday by the Russian Economic Development Ministry, since the beginning of 2023 retail prices for the sweet product have fallen by an average of 0.25% across the country.

The key reason for the cheapening of sugar in Russia may be its oversupply on the domestic market. This opinion was shared with by Oksana Lukichyova, commodity markets analyst at Otkritie Investments.

“This year we expect another increase in the area of crops and production. The country will form a surplus of about 2 million tons of sugar, which will need to be exported. This, in turn, contributes to lower prices,” Lukicheva explained.

According to the Union of Sugar Producers of Russia, at the beginning of April 2023, total inventories of sweet product in the Russian Federation exceeded 3 million tons. This is approximately 13.2% more compared to the same level of 2022. In addition, as of April 4, 120 thousand hectares of sugar beet were sown in the country, which is 10% more than last year.

“In total, in 2023, the area of sugar beet planting is expected to be 1.5% higher than last year’s level and will be 1.042 million hectares. Preservation of average levels of precipitation, as well as favorable air temperature will contribute to the positive dynamics of sugar beet during its growth period”, – the organization noted.

At the moment the domestic demand for sugar in Russia is 103.2%, whereas to achieve the food security the index should be at least 90%. This was stated by Prime Minister Mikhail Mishustin at the end of March during his speech with annual government report in the State Duma.

As the head of the Cabinet reminded, back in 2022, against the background of unprecedented sanctions of the West against Moscow, many worried that the products might disappear from store shelves. Nevertheless, such a scenario was avoided, Mishustin stressed.

“Our farmers have not failed… The level of food security in Russia is one of the most reliable in the world. We provide the domestic demand with a surplus of grain, sugar, vegetable oil, meat and fish”, – added the chairman of the government.

Natalia Milchakova, a leading analyst with Freedom Finance Global, told that the increase in world commodity prices usually affects the cost of food in Russia with a difference of several months. Thus, the consequences of the current increase in sugar prices on the global market can be seen by average consumers in summer. However, the effect is unlikely to be sensitive, the expert believes.

“Traditionally, summer and early autumn in Russia are the deflation season. Since there is no rush demand for sugar and other essential products in the country today, we can assume that there will be no significant increase in sugar prices this year at all. According to our estimates the dynamics of retail prices may vary from increasing by about 0.5% to decrease by 0.7-0.8% until the end of 2023,” – Milchakova suggested.

At the same time, against the background of rising world prices and declining exports from India and Pakistan, Russia may return to Central Asia with supplies of sugar and derivatives, said Evgeny Ivanov. In particular, he said, Moscow could increase shipments to Tajikistan, Turkmenistan, Uzbekistan, Kyrgyzstan and Kazakhstan.

“We can supply goods to these countries by rail. Deliveries in this way are convenient and inexpensive for our companies,” concluded the expert.

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