Introduction to Economics

Examining and Forecasting Prices of Sugar

Professor Larry Haverkamp
G8

Julia Ng Hui En
Puan Ying Peng
Fan Ying Han
Michael Lim Jen Wen

1. Background Information

Sugar, a very common food which can be found in most of the food we
consumed has been around since prehistoric times when humans started
farming. It is an important part of the human diet, making food more
palatable and also providing us with easy to digest energy. Thus, for most
people, we consumes about 260 food calories of sugar worth every day,
which is equivalent to an average of 24 kg per year. And since everybody
loves consuming sugar and it makes up part of our basic dietary
necessity, prices of sugars does not fluctuates that much and are
generally quite affordable in nature.

2. Forecast by Analyst
A forecast table for the price of sugar by the respective renowned banks
or economic analyst are stated below.
Forecast
Made
(DD/MM/YYY
Y)

Website

For Date:
Dec 31 2015
(c/lb)

1 1/10/2015

Itau Unibanco
Holidings

BLOOMBERG

11.78

2 3/6/2015

Societe Generale

BLOOMBERG

11.90

3 28/9/2015

Prestige
Economics

BLOOMBERG

12.00

4 8/10/2015

DZ Bank AG
Deutsche

BLOOMBERG

12.75

5 19/10/2015

Commerzbank
AG

BLOOMBERG

13.50

6 16/10/2015

Westpac Banking
Co.

BLOOMBERG

13.60

7 13/10/2015

Capital
Economics

BLOOMBERG

13.80

8 26/10/2015

Morgan Stanley

www.agrimoney.
com

15.20

9 10/12/2014

National
Austrialia Bank

BLOOMBERG

16.00

www.worldbank.
org

17.70

BLOOMBERG

18.00

No
.

Organisation

10 22/1/2015

World Bank

11 23/9/2015

Citigroup Inc

Mean

14.20

Median

13.60

3. Market Analysis
Below shown an attached of the prices of sugar for the past 10 years and
the past year.
Graph 1

Graph 2

As we can see from graph 1, historically, sugar prices are relatively low,
fluctuating from about 4 dollars to 15 dollars. However, as we can see
from the table, sugar prices spiked up to 30 cents per pounds which is a
historical high. This increase in price is due to simple demand and supply.
Demand for sugar is relatively constant as generally we consumes lots of
sugar. Even thou sugar is globally produced, due to rain damages to

Brazil, coupled by Indias crop being decimated by dry weather, crop

problem in the commoditys two largest producers can still pack a heavy
enough punch to make a significant dent in world inventories. Thus sugar
prices soar to all time high of 30 cents per pounds.
However, as the weather stabilize and crops are being replenished,
market prices of sugar are retreating back to normal as seen from the
gradual price drop from 2012 to 2015.
Referring to table 2, using technical analysis of the historical prices of
sugar, we see that there is a resistance level at $15.00 as well as a
support level at $11.50. Our group feels that the price of sugar will
consolidate within this price and range, and bounce off the strong
resistance at 15, and remain around 13.23 for Dec 2015.

4. Conclusion
Implementing Macro concepts, sugar is a necessity and thus demand for
sugar is very price inelastic. Increase in pricing of sugar will not decrease
the demand for sugar and thus a shortage of sugar will cause an even
higher increase in price of sugar. Furthermore, prices of sugar are still
relatively cheap and is not very significant compared to average income.
This explains why prices of sugar rises 3 fold from about 10 cents to 30
cents.
Referring to the forecast by analyst, the mean of the forecast is 14.20 and
the median is 13.60. This shows that most analyst are predicting that
prices of sugar are declining compared to the current price of 14.53.
Furthermore, with the median number lower that the mean, it shows that
graph is right skewed and more analyst are leaning toward prices of sugar
declining.
According to a Bloomberg report on sugar prices, sugar fell to a six-year
low on speculation that the global glut will increase as the harvest
accelerates in Brazil, which is the worlds top producers. In Brazil, with
clearer skies and good weather in the coming months, the harvest for
sugar would be good. Weather forecast are also indicating suitable
weather conditions for harvesting of sugar in the next few months and
thus, prices of sugar are predicted to continue to drop. Furthermore, the
recent drop in energy prices also impacted on the price of sugar as
ethanol producers will have less incentives to use cane to make fuel. With
a lower energy price, more sugar would be refined for food, and thus as
the supply for sugar increases, the excess in supply would most probably
pushes the prices of sugar down and thus, our group feels that future
prices of sugar will continue to decline and hover around 13 cents per
pound of sugar.

Reference:
http://www.bloomberg.com/news/articles/2015-07-20/sugar-falls-to-six-year-lowon-signs-brazil-harvest-adds-to-glut
http://www.indexmundi.com/commodities/?commodity=sugar&months=360
http://www.agrimoney.com/news/morgan-stanley-upbeat-on-corn-soyoil-sugarprices--8936.html
http://www.worldbank.org/content/dam/Worldbank/GEP/GEP2015a/Price_Forecast.
pdf
Bloomberg Terminal