FEATURE: Russia-Ukraine war swells spot sugar prices across the EU+UK

Rallying energy markets, tight sugar availability and logistical issues from the fallout of Russia's military invasion of Ukraine have led to a surge in spot sugar prices across the EU+UK. This may result in sugar price volatility in the near future due to uncertainty about how the war progresses.

The geopolitical events have increased input costs for growers. These costs need to be absorbed by producers and passed on to end-users, which has resulted in high spot sugar prices across the EU+UK. Several factors have resulted in "[the sugar market becoming volatile], and everything can happen [now] in terms of [the sugar] price rising [or reducing]," according to a source.

Spot sugar prices surge

Rallies in oil and natural gas markets spooked traders, sources said, because of the sanctions placed on Russia that were seen as supportive to European sugar prices last month.

"[It is] clear that gas prices are going to be elevated for some time, so even if a sugar processor had hedged all its gas needs forward, it will feel the pinch next year," a second source said.

End-users that have not been covered fear not being able to get sugar, especially as producers do not want to put a price on sugar amid fears that Russia could cut off the natural gas supply.

"The situation in Ukraine has pushed [key participants] to hoard sugar," a third source said. "Imports are less than [the] same day last year, so there is a tighter situation regarding the stocks."

European natural gas prices have pared some of the gains while there have been some short-term relief to crude oil prices. This should result in spot sugar prices across EU+UK reducing, but the energy market is still volatile as "we have no idea what [Russian President Vladimir] Putin will do next and how that will drive energy prices," a fourth source said.

There has been a lot of port congestion in Europe due to the Russia-Ukraine conflict.

"The supply chain has become more problematic due to the lack of drivers, and trade flows worldwide are not moving smoothly," a fifth source said. "[Ukrainian drivers] make up 10% of the European workforce, and a lot have stopped working due to [the conflict], which has had an indirect hit on the logistics," the source added.

The war has incentivized farmers to grow cereals and rapeseed for the 2022-23 campaign as these crops have seen stronger increases in prices instead of sugar beet.

Analysts at S&P Global Commodity Insights have cut sugar production to 17.282 million mt in 2022-23 from 17.488 million mt in 2021-22 for the EU+UK. Sugar production was forecast lower as S&P Global analysts have decreased beet acreage this spring in the EU+UK by 0.7% on the year to 1.584 million ha, as other crops have been paying better than sugar beet.

Farmers in France, the EU's biggest crop producer, are expected to cut back on wheat and sugar sowing for this year's harvest and expand barley and rapeseed acreage, the country's farm ministry said in the week ended April 16.

S&P Global analysts also have reduced sugar consumption to 16.860 million mt in 2022-23 from 16.927 million mt in 2021-22 in the EU+UK.

The EC cut sugar consumption forecast to 18.108 million mt in 2022-23 from 18.194 million mt. Consumption was higher in 2021-22 because of refugees entering the EU+UK from Ukraine. As the trend in EU is for healthier products, a decrease of overall sugar consumption for 2021-22 was added. However, there could be an upside to the 2022-23 consumption if more refugees continue entering the EU+UK.

High domestic, export sugar prices

S&P Global's assessment of White Sugar Delivered for Northwest Europe hit an all-time high of Eur816/mt on April 1 since the assessment began on Feb. 11, 2013.

At the same time, S&P Global's assessment of White Sugar Delivered for Mediterranean Europe hit a nine-year high of Eur769/mt on April 8. The assessment of White Sugar Delivered for UK hit an all-time high of Eur860/mt on April 8, the highest since the assessment began on July 1, 2016.

A future of uncertainty

The war has impacted input costs for sugar growers such as energy, fertilizer, and logistics. It also has influenced the supply and demand dynamics for sugar as other crops become more favorable to growers, as those have seen stronger increases in prices.

At the beginning of the war these factors acted as market shocks, however, as time has passed the uncertainty has only increased. This may result in spot sugar prices remaining volatile in the near term.