Sugar prices spiked to their highest level in more than 30 years as a massive tropical cyclone slammed into the northeast coast of Australia, the world’s third-biggest exporter of the sweetener. Raw sugar futures jumped 4% to settle at 35.31 cents a pound on Wednesday after trading as high as 36.11 cents.
Cyclone Yasi, which officials say is one of the strongest storms to ever hit Australia, made landfall on the Queensland coast, which was ravaged by floods just weeks ago.
Yasi “is playing into the psychology of the sugar market,” said Luis Rangel, a vice president at ICAP Futures. “This just gives 1 8 the market 3 8 an extra boost.”
Prices for raw sugar, which is refined into the white sugar sold to consumers, have soared 73% over the past five months as demand has outpaced the supplies available on the global market.
Wednesday’s surge in sugar further illustrates the broader rise in food prices. Wheat futures jumped 3.3% to close at a 2 1/2-year high. Corn, cocoa and coffee also ended higher. While the impact of food inflation is expected to be limited in the U.S., it is already reverberating throughout emerging economies and raising concerns about potential social unrest.
Even before Yasi emerged, sugar supplies were tight due to disappointing output from No. 1 exporter Brazil and weather problems elsewhere. Cane farmers in Australia’s sugar industry already faced losses after flooding soaked Queensland in late 2010 and early this year during the key harvesting and crushing period.
Farmers’ group Canegrowers estimates losses of more than A$500 million ($505.7 million) from Yasi, which hit the prime growing and milling region.
If weather volatility results in a 2% shortfall to production forecasts, then the global supply and demand will “at best” be matched in 2011-12, according to Czarnikow Group Ltd., a London-based sugar trading house.
According to Australian forecasting bureau Abares, the just-finished harvest yielded a crop of only 3.6 million tons of sugar, the lowest level in almost 20 years. Analysts said predictions of four million tons for the coming harvest could prove too optimistic.
The raw-sugar market has seen significant price swings recently, but some analysts say potential damage could raise the floor.
“We’ll find some support at that 35-cent-a-pound level,” and prices could go higher if damage from the cyclone proves widespread, said Michael McDougall, a senior vice president at brokerage Newedge.
Wednesday’s settlement price is the highest since November 1980, when sugar was about 36 cents. That is roughly 92 cents in today’s dollars.
