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Why sugar and corn prices are going up

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Sugar supply has been declining worldwide not because more people are consuming more sugar.. As global demand is now outpacing sugar supply and production worldwide, sugar prices have been rising to levels not seen since the historic highs of 1975 and 1982.

Since sugar and corn are now being used as raw materials for the production of ethanol -- used to mix with gasoline to make clean “eco-fuel” -- consumption of these two essential commodities is being diverted more and more for industrial use. As such, we’re likely to see less and less sugar supply available for consumers worldwide.

That was why we’re not surprised when investors from China and South Korea came scrambling over each other looking for huge farm areas to plant sugarcane in northern Luzon and central Visayas. These two countries are some of the world’s biggest importers of sugar since Brazil, the world’s top sugar producer, is now using sugar to make ethanol.

As an ordinary consumer of table sugar for my breakfast coffee, I still find it so difficult to imagine car drivers using sugar alcohol to run their cars. But it’s happening now all over the world amidst a global effort to find cleaner fuels to slow down the pace of global warming.

Even large producers of livestocks like chicken and hogs have more reasons to worry about the future of corn feeds since a big chunk of global corn has been set aside to produce ethanol. This also explains why the price of yellow corn which is used to make feeds for livestocks has become so expensive for the world’s corn importers.

Way back in 2007, yellow corn No. 2 was offered for only 216 U.S. dollars per metric ton C&F delivery to Iran by our Brazilian friend Denio Ayres, president of WRB Commercial Exportadora Ltda to Iranian buyer Nasser Sohi who found the price “too high” for importers and distributors in Tehran, Iran.

Now, Iranian buyer have no choice but to get that yellow corn from Brazil for as high as 600 to 700 U.S. dollars/MT -- and all because the annual production for this commodity has been divided for both consumer and industrial use.

A few years back, I got a call from a big buyer in Greece who wants me to work out a good deal with my friend Neville Rodriguez of Brazil-based Melliex International for a 5 million metric ton shipment of yellow corn to South Korea, to be guaranteed by a Korean government bank. The offer price was pegged at around 280 U.S. dollars/MT ton C&F Seoul but the deal collapsed due to endless price haggling by the Greek. Now he’ll never get that corn from Brazil even for 600 U.S. dollars/MT.

It’s easy to figure out that the high costs of corn feeds will end up with high cost of chickens and hogs. And the higher cost of sugar will even make that worse. This, in turn, will deprive people of these basic food items when they become too expensive.

There’s no way you can fight global warming without coming face to face with the terrible reality of global hunger. (PNA)

By Aurelio A. Pena

 




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