Like other agricultural commodities, sugar is affected by high volatility in futures markets. In recent weeks, this trend has accelerated. Since the beginning of January, prices have continued to bounce back, reflecting the growing uncertainty that continues to unsettle market players.
Background: early February, sugar prices soar. Prices then reach $845 a tonne, the highest level since 1987. 2nd March, sugar experienced its first decline in three months on the futures markets in London and New York. At that time it was worth $700 per tonne on the London Stock Exchange. For analysts, this decline is due to two main reasons: the next Brazilian crop is predicted to be significant and the EU decided to put some 500 000 tonnes of non-quota sugar on the market in order to stabilize prices.
Two days later, on 4th March, opinions diverge. Some say prices will fall due to growing and sustained production against a stagnant demand, particularly for biofuels. Others, however, believe that prices will start rising as the latest report from the International Sugar Organisation (ISO) announced that sugar production will be disapointing, particularly in Brazil, even though a few months earlier, the organization predicted much higher production levels.
If sugar is symptomatic of the specificity of international agricultural markets: it is impossible for a producer and even more for a financier to precisely assess the amounts that will ultimately be produced, their quality and the prices at which they can be sold. By doing so, any additional information on the status of the coming harvest is an important signal to markets especially now that markets are tight, hypervolatile and in a context of latent economic recovery.
Also, the only thing we can now be certain of is that uncertainty is the norm and more so in the coming weeks, accompanied by price movements as brutal as they are unpredictable, without the fundamentals of supply and demand being really affected ... This is a typical case of complex market anticipation where the latter becomes the main factor in the evolution of short-term markets, with all the dangers it threatens to global equilibrium.