Raw Sugar. (Photo by Samsul Said/Bloomberg)
Sugar prices are surging as fires and drought slam fields in top grower Brazil, threatening higher costs for sweets and desserts.
Raw sugar futures headed for their biggest weekly gain in 16 years, as traders digested the extent of crop damage from the blazes and a blistering heat wave in the nation.
Sao Paulo state - part of Brazil’s main Center-South growing region - has faced a record number of fires this summer due to a lack of moisture. That damaged cane roots, and may force producers to replant or face a smaller harvest in the upcoming season. It also followed a long dry spell since last October, which curbed yields.
While shifts in farmgate prices take time to feed through to the grocery store, sugar’s latest surge puts the sweetener on track for a sixth straight annual gain, keeping pressure on foodmakers.
Trader Wilmar International Ltd. lowered its forecast for sugar output in the Center-South, citing a series of "unusual and persistent weather events.” In a post on X, Wilmar said fires last month impacted as much as 450,000 hectares (1.1 million acres) of sugar cane.
"The diminishing outlook for Brazil’s Center-South production has been the key fundamental factor,” said Mark Bowman, senior global market analyst at ADM Investor Services. "The dry conditions and the possibility of a drop in their production have been known for some time, but recent reports have accelerated the concerns.”
The jump in sugar coincides with a surge the price of other crops like coffee and cocoa, putting particular strain on the beverage and dessert aisles. The weather-fueled price increases come as consumer goods companies already face challenges trying to coax shoppers back to some premium foods brands after a period of high inflation and belt-tightening.
The challenging environment has prompted leadership changes in the food industry.
Nestle SA Chief Executive Officer Mark Schneider unexpectedly left the Swiss producer of KitKat and Nescafé last month. Laxman Narasimhan also recently lost his job as CEO of Starbucks Corp. after less than two years.
The most-active raw sugar future rose as much as 3.8% in New York. It’s currently on track for a gain of almost 16% this week, which would be the biggest weekly advance since August 2008.
Brazil is set to remain mostly dry during the next 6 to 10 days, although "light showers will be possible” in the southern portions of the Center-South on Friday and Saturday, according to forecaster Maxar Technologies Inc.
An improvement in weather conditions in October is "unlikely to benefit this current crop, maybe only the next crop”, according to Wilmar.
