World Market

At the start of 2006 the sugar market staged an impressive rally that marked the highest level for the price of sugar in the last 25 years. On 3rd February 2006, the spot March No.11 contract reached a high of 19.73c though by late September had fallen to a low of 9.70c. Prices ended 2006 lower than they were at the start of the year.

A disappointing end to the 2005 Brazil crop affected export availability during the Centre South (CS) off crop period. This coincided with strong demand from end destinations such as Iran, China, Pakistan and Russia as well as other important markets during the first quarter of 2006, which helped underpin sugar prices. In addition, producers who were over hedged had to buy back their positions which added further upside momentum. This resulted in the unusual situation where both importers and exporters were on the buying side of the futures market. Meanwhile, speculators were also holding sizeable long positions in line with the general commodity boom.

However, the rally to almost 20.00c saw a response from both producers and consumers. Higher prices dented imports in a number of key world markets, such as China, which suggested that the market was doing its job as price rationed supply. On the production side, it stimulated higher plantings. As a result, the market trended lower with the speculators liquidating their long positions. The London whites market was also pressurised under the weight of record EU exports. However, Brazil remained the focus of attention.