by Jerome a Paris
Thu Mar 30th, 2006 at 05:44:34 PM EST
Haha. The fun never stops...
Sugar: Prices soar as Brazil’s flexfuel cars set the pace
A mixture of free-trade politics, speculative flows of “hot” money and environmental concerns have also helped make sugar the best performing commodity this year.
(...) for once China does not appear to be the central driver of a dramatic reversal in the fortunes of a commodity market.
Instead it has been Brazil’s thirst for ethanol, derived from sugar cane, to power “flexfuel” cars that also run on petrol that has pushed sugar to a 25-year high.
One more commodity used to fuel our cars' limitless needs is running out...
About half of Brazil’s sugar cane crop is used for domestic ethanol production, with flexfuel cars accounting for almost 50 per cent of domestic new car sales. They also represent a budding export industry, with the US, Sweden and Britain already selling the environment-friendly cars.
In the past 12 months sugar has come to be seen as an energy crop because of the growth in demand for ethanol, says Sergey Gudoshnikov, senior economist at the International Sugar Organisation, which represents most of the world’s producers.
So demand is skyrocketing, because of our need for energy, and oil-substitutes. An indirect sign of peak oil, if that was ever needed. And it's happening really, really quickly...
Czarnikow predicts a raw sugar trade deficit of more than 4m tonnes, the largest shortfall in six years. The ISO estimates that sugar inventories are about 35 per cent of global production, down from 50 per cent in the late 1990s.
However, other analysts reckon stockpiles are a lot lower, making the sugar market even more vulnerable to shocks such as Cyclone Larry, which this month wiped out about 10 per cent of Australia’s raw sugar output.
“The challenge to find increased sugar output is becoming more difficult,” says Mr Gudoshnikov, who expects annual sugar demand to continue rising at an average of 2 per cent.
“That means finding 3m tonnes or more of new sugar production each year, whereas 30 years ago a 2 per cent increase meant a couple of hundred tonnes.”
So, production is already lagging behind demand, and the market is getting very tight, making it vulnerable to external shocks like hurricanes (heh, in Australia this time). Isn't it strange that this is happening at the very moment these external shocks seem to become more frequent?
It is really starting to look like we are getting to the end of a lot of things at the same time, as we switch from the most depleted to others, making the depletion of these catch up extra quickly. Of course, sugar itself cannot be "depleted", but the land used to grow it can, or can reach very real limits. The article suggests that Brazil's production is stagnating despite increased land use, due to unfavorable weather impact (in that case, droughts, but these seem to happen all too frequently, and what will it be the other years?)
And, very similarly to the distorted energy markets, the sugar market is not really a market:
Sugar lobby still packs a punch despite reform
Global trade in sugar is one of the most distorted of all commodity markets, thanks to sugar lobbies that frequently punch well above their weight when demanding subsidies and tariff protection.
The world sugar market has often been called a “dump market” by many sugar growers. Prices are depressed by cheap sugar from efficient producers like Brazil and Thailand that are kept out of rich countries’ markets, and by those rich countries, particularly the European Union, that dump subsidised sugar that exceeds their own needs.
Prices lower than they should be thanks to subsidies... lobbies that are very effective at keeping access to public funding or public "protection"... distorted incentives for all. Where have we seen this before?
When will we learn?