Candy Industry Senior Editor Liz Parker recently was able to touch base with Nidhi Jain, associate specialist, The Smart Cube, London, on raw sugar and cocoa prices reaching 10-year and 7-year highs, and trends on sugar and cocoa prices.
Liz Parker: Why have prices of raw sugar and cocoa touched 10-year and 7-year highs, respectively, in April?
Nidhi Jain: Prices have increased due to tight supply and rising demand. On the supply side, a perfect storm of variables is to blame, including lower harvest yields due to extreme weather conditions like unseasonal rain in India, drought in parts of Europe, and dry weather in China and the Ivory Coast. Logistical and supply chain bottlenecks have also impacted exports from Brazil. There is also a rising demand for sugar and cocoa due to the increased usage of chocolate and candy seasonally, as well as continued increased sales within the snacking industry.
LP: How can sugar output be impacted by weather conditions?
NJ: Extreme weather, such as hot and dry conditions or unseasonal rain levels, can significantly impact crop yield. For example, output in India, which is the second largest sugar producer, is likely to fall 11% Y-o-Y in 2023 due to unseasonal rain in key producing states (Uttar Pradesh, Maharashtra and Karnataka). In Europe, a drought during the summer of 2022 also negatively impacted beet sugar output for the harvest of 2022/23.
LP: Will the price of sugar change when the Brazilian crop enters the market in the next one to two months?
NJ: Yes, prices are expected to slightly drop. However, they will remain high in comparison to historical pricing. While Brazil is expected to witness a bumper crop this year – up 15% Y-o-Y, ongoing logistical bottlenecks and supply chain issues are restricting sugar shipments from the country. Brazilian ports are facing congestion as this year’s bumper agriculture output for soy and sugar is lining up to be shipped. Also, rains have delayed sugarcane crushing in the country.
LP: When can manufacturers expect sugar to retreat from its current highs?
NJ: Sugar prices witnessed a technical correction in May (falling 4.9% on May 18 vs. April 28) and are expected to retreat further by the end of Q2 or early Q3, as Brazilian sugar enters the market with likely easing of port congestion. Additionally, demand rationing in price sensitive countries like India and China (owing to high prices) and weak macroeconomic sentiment may weigh on prices.
However, the upcoming weather pattern of El Niño has the potential to keep these rates high, likely impacting sugar output through 2023.
LP: Can weather also impact cocoa prices?
NJ: Yes, Ivory Coast, the leading cocoa producer, is projected to witness a 25% Y-o-Y fall in its mid-year cocoa crop due to hot and dry weather in the region. Further, cocoa crop quality in West Africa may be jeopardized by lack of fertilizer and pesticide availability as continued sanctions on Russia limit the country’s exports.
LP: When can manufacturers expect cocoa to drop in price?
NJ: Short- to medium-term supply constraints are anticipated to keep cocoa prices high throughout the year and into Q1 2024. London cocoa prices reached 2,332 GBP/tonne on 18 May and have potential to rise a further 7–10% touching 2,580 GBP/tonne (peak levels observed during a strong El Niño period of 2015–2016). However, the arrival of main-cocoa crop (starting October) and demand rationing owing to high prices may lead to slight price weakness in late Q3 or Q4 2023.