Sugar and cocoa markets remain at stubbornly high levels, according to sector research

Pressure has continued to mount on confectionery and wider supply chains, with prices for both raw sugar and cocoa reportedly reaching 10-year and seven-year highs respectively by the end of last month, according to commodities analysis group The Smart Cube, writes Neill Barston.

As previously reported by Confectionery Production, the situation has led to European trade body Caobisco joining wider industry calls upon the EU for urgent regulatory measures in a bid to curb the costs of sugar in particular, as the industry faces the prospects of potential factory shutdowns and job-losses, as the cost of operating intensifies considerably.

According to forecasts, pricing for the major sector commodity, its output is projected to drop in key producing countries such as India, Thailand and China, which also presents further global market challenges.

As the Smart Cube noted, output in India, which is the second-largest sugar producer, is said to be likely to fall 5 per cent Year-Over-Year (YOY) in the marketing year 2022/23, while in China, the top sugar consumer, volumes are estimated to drop 6.3 per cent year-on-year.

Meanwhile, as the group further highlighted, according to the International Cocoa Organisation, the cocoa market is also expected to witness supply deficit as global cocoa ending stocks are forecasted to fall 3.5 per cent YOY in the marketing year 2022/23. For example, Ivory Coast, the leading cocoa producer, is projected to witness a 25 per cent YOY fall in its mid-year cocoa crop.

Nidhi Jain, associate specialist at The Smart Cube, comments on what has caused the prices of these commodities to surge. “Sugar output has largely been impacted by variable weather conditions. In India, the likely fall in sugar production for the marketing year 2022/23 can be attributed to lower yields, as the key producing states were affected by unseasonal rain. In turn, this saw lower cane availability, causing early closure of sugar mills in the country. Meanwhile, sugar output in China is estimated to drop due to dry weather in the key sugarcane-producing province of Guangxi. Although Brazil is expected to witness a bumper crop this year – up 15 per cent YOY – ongoing logistical bottlenecks and supply chain issues are restricting sugar shipments from the country. Furthermore, rains have delayed sugarcane crushing in the country.

“Looking at cocoa prices, these are projected to witness a fall owing to hot and dry weather in cocoa-producing countries, such as Ivory Coast. Cocoa bean arrival from farms to Ivory Coast ports fell 4.6 per cent YOY from 1st October to 16th April. Additionally, crop quality in West Africa may be jeopardised due to a lack of fertiliser and pesticides availability as continued sanctions on Russia – the largest fertilisers exporter – has limited exports.

“Energy prices are also expected to rise which could sustain the price hikes, particularly regarding sugar. A bullish price forecast for Brent crude oil prices amid supply uncertainty following OPEC+ members’ surprise production cut of 1.16 million b/d (from May until the end of 2023) may help the upward trend in sugar prices, in addition to the limited supply of sugar. A rise in Brent crude oil prices encourages cane diversion towards ethanol production and restricts sugar supply. Furthermore, higher Brent crude oil prices will also increase transportation costs.

Jain added that with sugar and cocoa being highly integral parts of many confectionery ranges, price increases for these ingredients are set to continue to rise notably, with cocoa’s cost share being around 20% of the price of bars, and around 7% for a chocolate muffin.

With supply constraints expect to continue in the medium-term, the analyst added that cocoa prices are likely to remain high, though sugar prices could potentially fall with expected movement within the Brazilian market within the six weeks, though costs remain at near historic highs.

 

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