26 June 2020
As COVID-19 spread outside China, consumers began stockpiling sugar in anticipation of global lockdown measures. While this initial wave of demand was for at-home consumption, it soon became clear that this would not be enough to offset the loss of demand for sugar products consumed when eating away from home, with average prices in May 30 per cent lower than in February 2020.
Despite a recovery in prices since the beginning of the pandemic, higher sugar production is expected to negatively weigh on prices over the next few months. The two main products derived from sugarcane are sugar and ethanol. What determines either of their production is price. At the moment, mills are producing more sugar because the price of ethanol is low.
In Brazil, the largest sugar-producing country in the world, the reduction in ethanol demand during the first two months of lockdown measures represented the equivalent loss in demand of about four million tons of sugar. This is equivalent to the annual sugar production of Australia, or half of the US sugar production.
Furthermore, because of the direct link between sugar and energy markets, any escalation of tensions in the Middle East could impact the price of sugar around the world as well, further weighing on sugar’s trading price. So, although baking and cooking may have gone up at home, for sugar producers, the lack of driving (ethanol) and eating out (sugar) has not helped to offset revenue loss.
Manuela Czinar, Macquarie agricultural commodities analyst