Food Crisis Watch: Sugar On Fire- Writing On The Wall?

Sugar prices have been on fire.

According to the Economist, ``THE price of sugar is higher than at any point in 27 years, having risen much more than prices of other food in recent months. The cause appears to be a huge drop in sugar production in India, the world's second-largest producer. In the 2007-08 season India's output was 28.6m tonnes of sugar, but this year production is estimated to fall to 16m tonnes. Indian farmers planted less sugarcane last year after sugar prices fell, partly in response to a ban on exports. A weak monsoon also threatens this year's production. Indians are also the biggest consumers of the sweet stuff: in 2008, they used 24.3m tonnes, nearly 15% of global demand. A decline in Indian production means that it will import more, driving up international prices. India's government has lifted its export ban, but production is unlikely to meet demand before 2011."

So the unintended effects from government policies to curb exports and weather appears to be the "seen" culprit.

But as you would probably notice, the Economist food price index have likewise been creeping higher but at a much subdued clip relative to sugar prices.

I would add that sugar's accelerated price movement came about as stock markets globally surged. This implies of some correlation-loose monetary environment plus fiscal policies may have likely been principal factors too.

Nonetheless here is Jim Roger's take on sugar.(emphasis added)

``Sugar –even though it is at a 28 year highs, you would probably know it is down 70% from its all time high. So sugar is still very depressed on any kind of historic basis and I suspect it will go higher. The last time we had a bull market in sugar in 70s, if you would remember there was no biofuel - that is a huge new element of demand now and most of Asia was not involved in the sugar market in any big way back in the 70s. But now Asia is prospering and there are 3 billion people trying to have a better life and most people when they get more prosperous, use more sweets. So you have big elements of demand in sugar now that you did not have in the last bull market. I wouldn’t sell sugar, I don’t know if it is going to go up in the next week or the next month but I am certainly expecting sugar to go much higher during the course of the bull market over the next several years.

It won't be just sugar though...

Jim Rogers anew, ``food inventories are at the lowest they have been in decades – not lowest in months or years but in decades. There is a very good chance that we are going very serious explosions in the price of food because we may have no food at any price if we continue to have weather problems. Yes you are having some monsoon problems in India but the rest of the world still hasn’t had bad weather. If we start having serious weather problems around the world as we have had many times in history, the price of food is going to skyrocket because there are no inventories and there is no productive capacity."

Ergo, The price spike in sugar could be the proverbial "shot across the bow".

As we noted in Chart: Global Food Price Inflation

``Many factors that gives rise to these disparities, aside from monetary and fiscal policies (taxes, tariffs, subsidies, etc...), there are considerations of the conditions of infrastructure, capital structure, logistics/distribution, markets, arable lands, water, soil fertility, technology, productivity, economic structure and etc.

``Our concern is given the present "benign state of inflation", some developing countries have already been experiencing high food prices, what more if inflation gets a deeper traction globally? Could this be an ominous sign of food crisis perhaps?"