By MoneyMorning.com.au
Did you know that more than 20% of ice-cream is made of sugar?
Not only is it the sweetener of choice when it comes to your favourite junk foods. It’s also nature’s natural preservative.
Australia is well known as the third largest exporter of raw-sugar. But we will see a dip in production this year.
Heavy rains, cyclone Yasi and floods in the Sunshine State meant the sugarcane recently harvested is too wet to crush.
This means Australia will produce just 30 million tonnes this year. Last year it was between 32-35 million tonnes.
But the Australian weather isn’t the main reason for the rise in raw sugar prices…
Sugar No. 11 futures have recently come off two-year highs of 30.4 cents per pound.
Brazil is the world’s largest exporter of sugarcane. And because of lousy weather, it will produce 5% less than it did last year. (Around 498 million tonnes.)
That doesn’t seem like a big drop. But, Brazil doesn’t just use sugarcane as a food source.
In fact, 60% of its sugarcane production is used in ethanol-based fuels.
Last year Brazil produced 26 billion litres of sugarcane-based ethanol fuel. The shortage of raw sugar has seen ethanol futures prices climb…
The October 2011 futures contract is currently trading at USD$1286.50 (AUD: $1,245.17).
Ethanol is such an important fuel in Brazil. And the less sugar Brazil produces, the higher the ethanol futures price will climb.
Bad weather will affect this year’s planting season too. This is why ‘normal’ production levels aren’t expected to return to normal until 2013. In fact, the price per pound of sugar isn’t expected to dip below USD25 cents until 2012.
Normally, Australia would be unaffected by the short supply of Brazilian sugar. As we consume our locally produced sugar. But because of the bad weather and the smaller harvest size, the increase in the spot price is set to have a big impact on Aussie consumers for another two years.
Shae Smith
Editor, Money Morning
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