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The Sugar-Ethanol Equation
By Mr Ethanol | September 2, 2008
Jerusalem Post:
Most people think of sugar in terms of coffee and calories, but today sugar is a widely traded commodity with an average daily trading volume of 125,851 contracts and a value of $1.94 billion, making it one of the most widely traded agricultural commodities in the world.
Aside from being a food additive, it has major industrial usage as a fuel additive in the production of ethanol, which has had a strong effect on the prices of sugar over the past year.
The price volatility of sugar has been enormous. Futures contracts for sugar (#11, also known as the price for World Sugar) started the year at $11.57/lb. In little more than two months the price increased more than 33 percent, peaking at a high of $15.42/lb on March 3rd. Since then, the price has fallen by more then 29%, just to climb up again, than it fell by another 13.6%… and so the story continues, with current sugar prices about 20% higher than year-to-date.
What has caused these price fluctuations? Many people would jump at supply and demand fundamentals, citing asserting that demand has outstripped supply, but this is simply not true, as sugar production has outpaced consumption over the last couple of years.
This is an indication that the price volatility is more a reflection of the activity of financial speculation, particularly in the realm of managed investments, rather than changes in the underlying fundamentals.
Also, the price of oil recently peaked at $147.27/barrel (representing a 59% increase since the beginning of the year), pushing transportation costs north and leading to higher food prices for the end consumer. Read full article.
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