I’ve been watching the commodity charts lately to see what’s been running up a lot. Sugar came on my radar screen months ago. Since then, it’s soared to one new 52-week high after another.
Now, many people would look at this increasing expense and think of who it’s hurting. However, I look through my investor-colored glasses and ask myself, “Who’s being helped by this?”
Upon researching it out, I found out that it is predominately Brazil!
Back in the early 1990s, Brazil only accounted for about 9 percent of all sugar production and exports. Roll the clock forward to today and the country controls approximately 25 percent of the market.
Sugar prices have soared this year. In fact they’re doubled in price in just over a year’s time into the $0.20 apound area.
Sugar production costs are roughly the same in boom times and tough times. However, when the prices are soaring, so are the profit margins. Therefore, this is just one more thing helping the Brazilian economy and its currency, the real.
By the way, the other two largest sugar producers are India and then China. So most of these BRIC nations are helped greatly by the huge run-up in sugar prices.
However, both India and China will see production deficits this year and that reduction in supply is what’s causing the huge run-up in the price of sugar. People don’t just stop eating products with sugar in them just because there is a cut-back in supply. So traders are taking advantage of this and bidding sugar ever higher.
The global shortfall this year is estimated to be 8 million tons this year and 4 million tons next year. Inadequate rains in India could cut sugar production there by half this year. So that really helps to support sugar’s rise right now. It’s also helping to ensure huge profits for Brazil for some time to come.
So the sugar shortage and the recovery in the global economy are huge drivers that support the continued rise of the Brazilian real.
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