Our annual sugar price forecast is neutral to mildly bullish for 2020 and 2021. Note that the previous forecast was neutral to mildly bearish, which appeared to be an accurate forecast. We look at supply and demand in the global sugar market, as well as our inflation indicator and obviously the long term sugar price chart. Note that this article is part of our annual series of forecasts. Starting this year we combine 2 years so it’s not a 2020 forecast vs. a 2021 forecast. We consider this sugar price forecast to be one of the must read forecasts of InvestingHaven’s research team especially because of the level of accuracy of our previous sugar price forecasts.
Before we look in the details we want to note that doing a sugar price forecast is a challenge. There are multiple factors that determine the price of sugar, one of which being supply/demand. Moreover, sugar is subject to the volatility which is typical for commodities markets.
Summary of our Sugar Price Forecast for 2020 and 2021
Let’s start with our conclusion. Readers who don’t want to understand our underlying forecasting method can ignore the rest of the article.
We conclude that the price of sugar will be neutral to mildly bullish in 2020 and 2021. Even though a spike from the the $12 area (at the time of writing) to the $16 area is possible we emphasize this would be a temporary spike. It is likely that $16 will provide too much resistance to break out in 2020 or 2021.
These spikes which we predict may reflect a (temporary) 25 pct price rise. However, this is not the type of bull market that makes us warm, on the contrary it’s far from interesting in our view. That’s because supply demand factors in the global sugar market combined with lack of inflation is not supporting a fundamentally sound bull market.Click To Tweet
In case the sugar price succeeds in breaking through the $16 resistance line will we see a strong bull market. Not likely, but important enough to mention.
The bearish scenario will kick in once sugar falls below $10 with 3 to 5 consecutive weekly closes.
Sugar Price Predictions for 2020 and 2021
This table is a summary of the trends we expect in the coming years. It reflects our sugar price forecast for 2020 and 2021.This is our forecasted sugar price for the coming years. Prices reflect the spot price for sugar.
|Year||Sugar price forecast||Conditions||Invalid|
|2020||Neutral with a bullish bias||Continuation of sugar supply/demand + a flat commodities trend||If sugar breaks below 10.60|
|2021||Neutral with a bullish bias||Continuation of sugar supply/demand + a flat commodities trend||If sugar breaks below 10.60|
|2022||Potentially bullish (subject to revision)||N/A||N/A|
Supply Demand Forecast of 2019
Supply and demand factors in the sugar market were not favorable at the start of 2019. Below is an extract of what we wrote in our 2019 forecast.
As per this article on sugar supply/demand factors “sugar’s supply surplus will eventually push prices so low that production takes a hit. Sugar prices may see a rise to around 15 cents sometime in 2020 as the cost of production for efficient producers such as Brazil and Thailand stands at roughly 12 cents to 14 cents a pound. Prices will, of course, go up as producers go bankrupt, but that is a very slow process.”
World sugar production is forecast to reach a record level of 187.6 million metric tons in the 2017-18 marketing year, according to the United Nations’ Food and Agriculture Organization, or FAO. That would mark an increase of just over 11% from the previous year.
We concluded: “The point is a global supply surplus.”
Our forecast appeared to be spot-on. But that doesn’t tell anything about the future, so we have to revise the current global supply demand situation for future sugar price predictions.
Supply Demand Factors In The Global Sugar Market
So far the supply/demand picture from last year. Those were not supportive of higher sugar prices. This, combined with the set up of the sugar price chart, made us conclude that our sugar price forecast 2019 was neutral with a bearish bias.
This article features Jose Orive, executive director of the International Sugar Organization. We are no experts in the sugar market, especially not in the supply and demand factors. So we have to rely on what other experts say, and try to assess the reliability of their forecast as well as the relevance for the price of sugar. That’s a crucial aspect of our sugar price forecast.
Supply Demand Forecast for 2020 in the Sugar Market
Mr. Orive forecasts “a global sugar deficit of about 3.5 million tonnes in 2019-20, growing to nearly 6 million tonnes in 2020-21, compared with global surpluses of 2.1 million tonnes in 2018-19 and 9.7 million tonnes in 2017-18.”
“The world is still suffering from high accumulated stocks that will need to be absorbed by the market before we can see any improvement on price,” Mr. Orive explained.
Mr. Orive is optimistic because production from major sugar suppliers appears to be declining, which will let stocks fall.
So this sounds like the oversupply of recent years is in the process of turning into a global deficit.
Mr. Orive continues:
We’re getting killed with consumption. The “war” on sugar, including sugar taxes in many countries. Recent years have shown a trend toward a slow but steady erosion in consumption. Annual consumption growth was about 2% in the mid-2000s but currently is below 1.5%. A considerable part of losses in consumption growth rates can be attributed to a slowing down in global population growth. But the sugar and health debate is starting to take its toll with the 2019-20 growth rate close to 1.39%.
And then you have the big picture supply demand factors suggesting a gradually declining demand for sugar. This obviously offsets the global deficit that is brewing.
Unpredictability of the Sugar Market and How It Affects Our Sugar Price Prediction
According to Jack Roney, director of economics and policy analysis for the A.S.A., the global sugar market is the most distorted commodity market in the world because of subsidies. “Today’s low prices are a result of these subsidies, and any bullish signals can be quickly undone by government intervention.”
Mr. Roney said the extreme volatility of the world market is the reason the United States has a sugar policy, and he urged governments around the world to put an end to competing subsidies.
“U.S. farmers are highly efficient, and we want to operate in a free market, but that cannot happen until all countries set aside their subsidies and let a real market form,” he concluded.
This obviously is a hugely important factor to take into account in the context of our sugar price prediction. Supply demand factors in the global sugar market are certainly a leading indicator for the price of sugar. But an unpredictable sugar market that can change fast, where weather can turn the market upside down, or a country suddenly can influence market dynamics makes a reliable prediction extremely challenging.
As an illustration this article on Indiatimes.com suggests that rising exports from India would lead to lower stock levels and consequently a mildly rising sugar price going into 2020. Based on a report the predicted sugar price rise is 8%.
Inflation as a Catalyst For Commodities and Sugar Prices
Interestingly, the price of sugar has provided a really strong leverage during inflationary periods in the last 2 decades.
If we take 2016 as an example there was a giant rally in the price of sugar. However, this came after a major bottom in inflation expectations which largely may explain the strong rise in the price of sugar. Moreover, there also was a supply deficit more than a supply surplus back then.
The years 2010 and 2011 were somehow similar in nature when it comes to inflation expectations.
Our most important inflation/deflation indicator does not seem to indicate a rising inflation. On the contrary it looks like inflation indicators suggest a flat commodity market in the years ahead, obviously until proven otherwise.
So based on our flat inflation indicator we believe commodity prices will remain largely suppressed. Sugar cannot expect a bullish boost from the commodity sector.
Sugar Price Targets Based on the Long Term Chart
The sugar price chart is really straightforward.
Most commodities charts tend to be very complex. They tend to have multiple patterns which are active simultaneously.
Not so with sugar.
Sugar’s long term price chart has this giant descending triangle with a top in 2011 and horizontal support at $10.50.
Before this we saw a clearly rising trend with distinct lower lows and higher highs, starting in 1999.
We expect the current triangle formation to continue in 2020 and 2021. Any trend change may potentially start in 2022 or later.
That’s why we believe the chart combined with leading indicators outlined above are nicely in synch. They suggest that the price of sugar may see a spike in 2020 or 2021 to the $16 area. Against the prices at the time of writing this is a 25 pct increase. Note that $16 is likely going to provide too much resistance to break out. Moreover we expect a classic spike followed by a decline, if and when this $16 is tested.
Although appealing this 25 pct is not the type of bull market that makes us warm to consider positions. In fact this is far from appealing. We don’t have any interest in this market as long as sugar trends within this descending triangle.
Note that the very long term sugar chart (37 years) does not add more value to our forecast than the one we used above (25 years).
Results of our previous Sugar Price Predictions
We want to be fully transparent with readers in all our forecasts, especially our annual forecasts.
That’s why we include this overview with our previous sugar price predictions. It appears that our first sugar price prediction was published last year. We don’t have as many forecasts as compared to for instance gold, silver, stock indexes.This is an overview of our sugar price forecasts from last year. We published this forecast early in the year. Prices reflect the spot price for sugar.
|Year||Our forecast||Highs||Lows||Accuracy of our outlook|
|2019||Neutral to mildly bearish||13.51||10.73||Spot-on|
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