That’s because energy costs will be a key factor for sugar prices in the coming months, since they determine the attractiveness of ethanol, a biofuel based on sugar cane. High gas prices can lead cane mills in Brazil, the main producer of sugar, to produce more ethanol than the sweetener.
Plinio Nastari, president of consultancy Datagro Ltd, said in an interview last week that the price of sugar will be closely linked to what happens in energy prices.
Signs that more Brazilian cane is being diverted to make the biofuel have helped raise prices of unrefined sugar futures in recent weeks. In any case, the sweetener continues to be the worst-performing raw material this year due to expectations of increased supply, in part because the European Union ruled out production cuts.
Brazil’s plants are expected to process 56 percent of the cane in ethanol when a new harvest begins in the central-southern region in April, an increase of 3 percentage points over the previous season.
“The price of sugar will follow the price of ethanol and the price of ethanol will follow the price of gasoline in the world market,” Nastari said. The real’s exchange rate will also be important, he added, because a weaker local currency makes sugar sales in dollars more attractive.
Crude sugar futures have risen 3.2 percent in New York this month while crude has advanced 6.4 percent. The price of oil will be more important for the sugar industry in April, when the center-south harvest begins in Brazil and decisions are made about what to do with the cane.