How much is a pound of sugar?

How much is a pound of sugar?

Traders who are watching sugar market, perhaps surprised the issues before the title of the article. C 1998, world prices for sugar is very low, and only once, briefly climbed above $ 0.1. And at the time of this writing, the price was $ 0.075. However, the sharp rise of energy has led to talk of the long exit from the industry crisis of overproduction, but with optimistic scenario is possible, even formation of a fundamentally new paradigm for the price of sugar. There is a purely Russian reasons for appeal to the topic.

Fundamental Analysis
In the season 2002-2003. expected new historical record for the world sugar production to 140 million metric tons. The previous maximum was recorded three years ago in 1999-2000.

However, shortly following the collapse in world prices has forced manufacturers worldwide to reduce the cultivation of sugar cane and sugar beet, to allow for the orderly reduction in world stocks of sugar. Compared to the record level of season 2000-2001. at 36,562 tonnes for the last two years, stocks fell by about 2 million tons per year, approaching the lower limit for the past five years - 32,018 tons.

The demand demonstrates the inverse dynamics. For over a decade, each year the consumption of sugar is increasing at an average of almost 2 million tons annually, or 1.9%. This was mainly due to population growth in the world with a stable value of the average consumer. However, in recent years, prices were the main driver of growth in consumption of sugar in the world, particularly in countries with relatively low living standards. The latter is traditionally served a kind of regulator of global demand-offer, as in rich countries, there is no correlation between the level of consumption and prices. Increased consumption has also contributed to the restoration of the developing Asian economies after the crisis of 1998, demand grew the most in India, Korea and Malaysia.

The last three years, growth in consumption has not received an adequate response by the proposal. Imbalance equalized through stocks. Now, this scenario has exhausted itself, creating the preconditions for the price spike in late 2002.

Significantly reduced the key rate for the price - the ratio of outgoing international balances to consumption. Thus if the stock only went to the bottom border trading range in recent years, the balances related to the consumption of perforated lower boundary. As can be seen from Table 1, it is expected that in the season 2002-2003. attitude will be approximately 23.98%. It is approximately midway between the "rule" the last five years, and ordinary meaning of the mid 90's.

By comparing prices at this time, we come to the fair and proper value of the price of raw sugar in the coming year - just below $ 0.1 per pound. In other words, above the current price.

Sweet couple
Curiously, the projections of the U.S. Department of Agriculture - the most authoritative agricultural structures in the world - in November 2002 have been directly opposite. It said that prices are inflated. The logic of their reasoning was as follows.

The production will be a record. However, despite the fact that demand in general is stable, is expected to decrease in imports. First of all it concerns the largest importer - of Russia, in conjunction with which must be taken into account as well as Ukraine, a major Russian supplier: both countries are increasing their production of sugar beet. Growth proposals while reducing consumption, Americans believed, would create additional downward pressure on prices.

Now, after several months from the date of publication of the American projections, the schedule of prices clearly shows their infidelity parcels (Fig. 1). In order not to gloat triumphantly, and learn from this situation, something good, try to understand the fundamental changes in the pricing factors acting now.

Immediately striking is the fact that in order to determine the price instead of assessing the world's stock took an assessment of import, not the world's imports, but Russia. In other words, implicitly used the assumption that the price mainly determine the behavior of major participants. Indeed, analyzing the practice of recent years, it is easy to identify the main factor in pricing - it is too common proposal (production plus reserves) and, consequently, it determines the behavior of consumers, especially the largest. Given the dominant role in world exports of Brazil, will not be greatly exaggerated statement that in the past five years, the price was determined by rotating around the axis of Brazil - Russia.