After the sugar price spike of 2010, the sugar commodity price has been hovering at around 28 to 29 cents a pound, which is its highest point since 1981. With the prices continuing to remain high over the years, it leads some to wonder what is contributing to this change in the sugar market. Some experts claim that it is the Farm Bill, which was passed in 2008, but they stop short of believing that it is the sole factor affecting the price of sugar.
Sugar Refinery Explosion:
One of the influencing factors which could have contributed to the rise in sugar commodity price in the U.S. is the explosion, which took place at the Imperial Sugar Company in Savannah, Georgia in 2008. The event left in its wake the death of a number of workers at the refinery as well as a facility that was completely put out of production. It took more than a year for the facility to get back on track, resulting in a major reduction in the country's capacity to refine sugar.
Another factor in the increase of the sugar commodity price in the country is the rise in competition brought on by sugar beet processors who are fighting for acreage with other agricultural producers in the United States. Statistics have shown that this issue could be causing American sugar production to decline by 19%. Much of this competition falls between crops like soybeans, wheat, and corn.
Studies have shown that although the United States has been growing its own sugar for more than a century, the climate within America is not the best for this type of agricultural activity. Due to the problematic climate, it can become far more costly to grow this product in the U.S. while countries like Brazil, with their warm and temperate weather have a far easier time contributing to the world's sugar production.
Due to the trouble sugar farmers go through to create these crops, the U.S. government guarantees them that their hard work will be well paid by preventing companies from seeking external sugar sources, even if the price from inside the country is quite inflated.
There are two types of futures sugar commodities traded on the market, one is World Sugar, and the other is United States sugar. The price of the sugar coming from the U.S. is substantially higher than that of the rest of the world. In fact, it can be seen as almost double, which has caused many to wonder if this high price will stay high or if it may yet see its fall on the market. If the government continues to promise farmers high payment for their hard work, these costs will continue to suffer with those buying futures finding it confusing to continue buying from within the U.S.
While it certainly seems economical to buy from within and support the financial growth of the country, these prices are sucking money out of companies across America which have no choice but to buy from home and hope that the rates don't break their banks.