By Butch Bacaoco
Sugar Prices and the Law of Supply and Demand
The previous Cane Points column closed with the rhetorical question: What price levels can farmers expect this crop year?
“Maybe the sugarcane price may vary on the Law of Supply and Demand,” replied Koykoy Narciso.
Precisely! And what has sugar prices indicated vis-à-vis supply and demand so far?
The bidding dated September 26 yielded P2,791.92 per bag for First Farmers, which was the same price on the following week’s bidding. Vicmico, which milled a week after First Farmers, reported a price of P2,650 per bag after its first bidding on October 3.
Are these the price levels which sugar farmers expect? Are they already comfortable with these price ranges?
Apparently so for Sugar Regulatory Administrator Paul Azcona, who stated last August 8 that farmgate prices were moving around at P2,500 to P2,800 per bag, and that’s a comfortable farmgate price.
While sugar farmers pine for the more than P3,000 per bag prices in Crop Year 2022-2023, Admin Paul cautioned that, if prices exceed P3,000 per bag, retail prices would increase, inflation would set in and sugar farmers would receive heat from above.
Farmers might reason out that, if P3,000 per bag is the inflation threshold, why not prices within P2,800 to P2,999.99 per bag?
As Koykoy said, it’s a matter of supply and demand.
Starting balance for raw sugar as of September 1, according to SRA, is 270,925 metric tons, compared to the starting balance of 192,959 mt last crop year.
Refined sugar starting balance is 308,518 mt, consisting of 230,826 mt mill production and 77,692 mt balance from refined sugar imports. Last crop year, the starting balance for refined sugar was a whooping 572,501 mt, consisting of a staggering 411,400 mt imported sugar and only 142,051 mt locally produced refined sugar.
Any wonder, then, that in CY 2023-2024, only Hawaiian and First Farmers reported prices barely above P3,000 per bag, and only on two occasions (September 15 and September 22 at an average price of P3,041 and P3,005, respectively)?
To recap, sugar prices in CY 2023-2024 failed to breach the P3,000 mark, except in the first two weeks of bidding. It was only in September 2023 that prices reached the highest at a monthly average of P2,757.71 per bag.
Prices rolled downhill, with January registering the lowest monthly average sugar price for CY 2023-2024 at P2,405.23 per bag, while the second lowest monthly average was in December 2023 at P2,414.98 per bag. The previous crop year closed with a monthly average of P2,444.22 per bag in the third week of May 2024.
What brought about these dismally low prices last crop year? Perhaps the observation last December 2023 of the Confederation of Sugar Producers Associations (CONFED) can shed some light.
In its press statement published in local and national media in mid-December 2023, Confed noticed that, based on SRA’s Sugar Supply and Demand Situation reports, more imported sugar than local sugar were being withdrawn by traders, resulting to the low prices of P2,300 – P2,500 per 50-kilo bag.
SRA’s November 12, 2023 report showed that, out of the total refined sugar withdrawal of 209,408 metric tons, only 32% (66,608mt) were locally refined sugar, while 68% (142,800mt) comprised of imported refined sugar.
The October 29, 2023 report disclosed that, out of 173,257mt of refined sugar withdrawn, only 31% (54,209mt) were locally refined, while the huge majority of 69% (119,050mt) were imported refined sugar.
Confed pointed out that approximately 40% of raw sugar are withdrawn for refining. If locally refined sugar is not given priority, the local sugar farmers who produce the raw sugar stand to suffer. As the supply of raw sugar piles up, prices would drop, Confed warned. And drop the prices did in CY 2023-2024!
With a refined sugar starting balance of 308,518 mt this crop year, compounded by the arrival anytime soon of the 240,000 mt imported refined sugar approved under Sugar Order No. 5, the warehouses will be awash with refined sugar, consequently weakening the demand for raw sugar.
Déjà vu?