Coffee prices have risen sharply recently. This is related to the extremely low temperatures that hit the key coffee production regions in Brazil, Sao Paulo and Minas Gerais. These two regions are primarily responsible for the production of Arabica. It is expected that production drops may reach approx. 3-4 million bags. With the current expectation of around 56 million bags, production may drop to the lowest level in 5 years. Still such production levels do not justify such a drastic rise in prices, even with demand rebounding. But can the same apply to the sugar market?
Production in Brazil may be even lower than the USDA's current forecast. However, we have to wait about 2-3 months for the confirmation. Source: USDA
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Create account Try a demo Download mobile app Download mobile appHowever, there are other problems with the sugar market. This market is heavily dependent on the demand for biofuels, which in turn is related to the price of crude oil. High oil prices should trigger a further potential rise in sugar prices. We are currently observing such a situation. Nevertheless, we should not expect potential large production losses in sugarcane. Cane is grown at significantly lower levels compared to coffee, which means that frosts are unlikely to affect the crops.
USDA expectations point to slight production drops for the 21/22 season. Source: USDA
Seasonality and oil prices indicate that sugar should cost more. However, sugar has no support from the weak Brazilian real. The upward trend should continue, but investors should not count on such sharp increases similar to those in the coffee market. Source: xStation5
