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On November 2nd, sugar prices soared to $750 a ton in London and $0.3064 per pound in New York, regaining the level reached in early February and dangerously rising to the level recorded 30 years ago in January 1981.
On sugar markets, prices for short-term contracts surpassed those for long-term contracts. “This indicates that most traders and investors are expecting global sugar supply problems,” says Vincent Geiger, a trader for the Newedge brokerage firm.
The sudden increase of sugar prices during these past few weeks may be explained by a supply shortfall. Indeed, several large producing nations were affected by serious weather vagaries. Brazil experienced a spell of dry weather this year and professionals are forecasting decreased sugarcane milling, the first decline in 11 years. According to official records, Brazil’s sugar production dropped by 30 percent during the first half of October from the same 2009 period. Lastly, in India––the world second-biggest producer––flooding in the Uttar Pradesh State, which grows close to half of the national yield, seriously damaged sugar crops. Many experts fear a risk of global shortage. In April, countries such as Iran, Iraq or Pakistan were already registering inadequate inventory levels to meet domestic consumption.
Just as it was the case this summer with the Russian and Ukrainian wheat, agricultural markets are thrown off balance by supply shrinkages caused by climate hazards. As long as market regulation is not in effect, all agricultural commodity prices will continue to experience high volatility occurrences, which not only destabilize markets but also the agricultural sector as a whole.
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