What are the prospects for international sugar prices in 2007?

Answer 1

There are two major variables for sugar prices. First, it's oil prices. The world's largest sugar producer, Brazil, uses about 70% of its production to turn into ethanol for its domestic automobile market. When oil prices, rise, more sugar goes into making ethanol, meaning demand rises, meaning that prices rise. Since sugar supply is relatively fixed given its year long growth cycle.

The second major variable is the latest WTO talks. The sticking point to the lastest WTO talks was agricultural subsidies. Americans wanted the cuts to be around 60% cuts. The Europeans wanted about 20% cuts. Sugar is one of the heaviest subsidized crops in the Northern hemishpere (e.g. US and Europe). The subsidy of European sugar is higher than the actual cost of producing sugar in another part of the world. In other words, it would be cheaper to pay the European sugar farms to not grow sugar than to grow it. Why? The temperate weather of the northern hemisphere means that sugar growers grow sugar beets, not sugar cane. Yields on sugar beats is lower per acre than cane, not to mention the much higher production of growing in, say, France, compared to Brazil.

If the WTO talks go through with an agreed upon tariff cut, sugar prices could spike as next year's sugar SUPPLY would be cut dramatically as it would no longer be economical to grow sugar beets.