Sugar is among one of the worst-performing commodities of the year. It declined more than -48% only from the year peak to its low while consumption is growing and production reaches historic records. When price declines it usually creates an opportunity for investors to profit in compliance with the primary rule of investing, buy the value for cheap.
Sugar price
The chart presents sugar prices over the last 10 years. Sugar price declined around 72% from its high on the beginning of 2011. It has done quite well in the recent years but it is still down 65% over a broader time horizon. The price can double or triple but it still would not reach its high. This is how extremely cheap that asset is.
Fundamentals on the sugar market
Sugar is produced mostly from sugarcane. Brazil is the world's largest producer of sugarcane and the biggest supplier responsible for more than 70% of the global sugar demand. According to research of the United States Department of Agriculture the global production and consumption will reach the historical record in the season of 2017/2018.
Source: United States Department of Agriculture
Brazilian sugar production is expected to reach a total of 645 million tonnes in the fiscal year of 2017-18. Brazil is not only the world's largest sugar producer but also the world's largest sugar exporter. In 2016, Brazil exported total 29 million tonnes of sugar, worth over $10.4 billion, representing nearly 50% of the world's total sugar exports that year.
Source: United States Department of Agriculture
Brazilian sugar cane industry continues to expand. Sugarcane is the world's largest crop and Brazil is its largest producer. Sugarcane alone accounts for over 80% of sugar produced. The Agricultural Trade Office also estimates that 48% of the sugarcane produced in Brazil will be diverted to sugar this coming fiscal year, due to the expected deficit on the world market, while total sugar exports are projected to increase by 5% reaching 29.07 million metric tonnes (MMT). The center-south (CS) region is expected to harvest 600 MMT of sugarcane in the fiscal year of 2017/18, while the North-North-eastern (NNE) sugarcane production for year 2017/18 is projected at 45 MMT.
