Poor Brazilian Crop Threatens Sugar Supplies

Montreal, Canada

Sugar might be at the cusp of another huge rally for the second time in as many years.

Like corn in the United States, sugar-based ethanol in Brazil is drawing more supply away from Brazilian kitchens and into automobiles. Brazilian sugar-based ethanol is far more popular than corn-based ethanol in the United States and has long been an important input in gasoline blends.

Brazil, the world’s largest producer of sugar, is approaching an output shortfall for the first time since 2006. More than 50% of the world’s sugar supply emanates from Brazil. India is the largest importer of sugar.

But the shortfall isn’t because of blending ethanol into gasoline. It’s Mother Nature.

Over the last 12 months, world sugar prices have rallied 41.5% and are poised to rise higher as bad weather hits Brazil’s cane crop this year.

Sugar is notoriously volatile. The staple crashed 43% from February to May before recovering to $0.27 cents recently.

Once again, volatile weather patterns have adversely impacted an important crop.

Over the past four years a torrent of violent weather worldwide has either reduced or destroyed crops in the Americas, Europe and Asia, including Australia. Climate change is here to stay and the implications are higher food prices longer term. The United Nations Food & Agricultural Organization Index (FAO) hit an all-time high this spring before receding in May and June.
Even without damaged crops, global population growth will continue to exceed arable land production for the foreseeable future; combined with falling water tables the trend is dire.

The correction now underway in the agriculture space, including peripheral themes like potash and phosphate, are great buying opportunities. Grain processors, grain-handling and agricultural trading houses have all been slammed over the past four weeks. And grain prices have consolidated 10% to 30% since June. Now is the time to buy.

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