JANUARY 6 bid results: HPCo A = P1,528, B = P1,631.80 & molasses = P6,700; Vicmico A = P1,567.70 & B = P1,727; Biscom A = P1,585, B = P1,707.60 & molasses = P6,790; Lopez A = P1,565.70; B = P1,728 & molasses = P6,915; First Farmers A = P1,567, B = P1,641 & molasses = P6,745; Sonedco A = P1,591, B = P1,717 & molasses = P6,791; Passi A = P1,576.56, B = P1,780, C1 = P1,670; Casa A = P1,576.56, B = P1,758.88 & C1 = P1,580

* * *

The start of Crop Year '09-'10, September 1, 2009, saw world raw sugar prices surge to an almost three-decade high of US 25.55 cents per pound at the New York Incontinental Exchange. On October 9, it dipped to its lowest level within this CY at US 21.18 cents per pound and see-sawed throughout November with prices never going beneath US 21 cents per pound. The lowest price was at US 21.33 last November 27.

For updates from around the country, follow Sun.Star on Twitter

From US 22.24 cents per pound on December 10, world raw sugar prices for March delivery continued its northward march, peaking at US 28.95 cents per pound at the New York ICE Futures last January 7. It is the highest recorded price since January 27, 1981, making it a 29-year high record.

At P45.81 to the dollar, that translates to P1,460 for March delivery yet. The price does not include freight, premium, tariff, E-VAT, SRA fees and liens, refining tolling fee, distribution and repacking cost and profit margins.

* * *

Why are world sugar prices this high? It's simply the market dynamics of supply and demand at work.

Way back in September, the International Sugar Organization stated that world sugar demand will exceed output by 9.35 million tons for the season ending September 30, 2009. For the current crop year, commodities analysts forecast a global deficit of around 7 million tons. London-based broker Czarnikow Group Ltd is not as optimistic as it predicted global sugar output to fall short of demand by 13.5 million tons.

Brazil, the world's largest sugar producer, is having problems with too much rain delaying its cane harvest. Such is the extent of decrease in cane harvest that Brazil is already considering the reduction of its mandated ethanol blend for flex-fuels in the country because of limited sugarcane supply. Its ethanol production dropped more than 8 percent from a year earlier to only 22.2 billion liters, said sugar group Unica.

India, the world's largest consumer and second largest producer of the sweetener, is in a bind. Its domestic demand is approximately 23 million tons but its projected production is not expected to reach 16 million tons. It contracted to import 3.8 million tons this season but, according to the Indian Sugar Mills Association, it may need 2 million tons more.

Pakistan, whose consumption is next only to India and China, has invited bids to import 150,000 metric tons of white sugar. In Indonesia, Deputy Agriculture Minister Bayu Krishnamurthi announced that its state-owned trading company has reached an agreement to buy 50,000 tons of refined sugar from Thailand. Mexico, the U.S. and Russia may also need to import more sugar this year.

* * *

Amid high domestic sugar prices triggered by the global deficit, there have been calls for sugar importation presumably to soften domestic prices. In fact, this week, the Sugar Alliance, SRA, the DA and DTI will reportedly further discuss the proposal. As they discuss a proposal which will impact not only the consumers but also the producers of sugar, it is best that they should first take a look at what's happening around the world.

India, despite its depleted stocks and even with all its financial resources, is delaying imports due to the surge in global prices, making importation unprofitable for Indian sugar mills.

"International prices have risen too much," lamented G.S.C Rao, executive director of Simbhaoli Sugars Ltd., a 75-year-old Indian mill with a crushing capacity of 20,100 tons a day based in Uttar Pradesh, the nation's biggest cane-growing state. "Imports can't rise and cane availability is limited. I'm not seeing a softening in prices in the near future."

Sugar prices in India have been steadily climbing for almost two weeks. Immediate-delivery prices in Mumbai reached 4,050 rupees per 100 kilograms, the highest level since at least July 2005. It has climbed by about 40 percent from April 2009 level.

One Indian rupee is roughly equivalent to one Philippine peso. Thus, a 50-kg bag of sugar in Mumbai is about P2,025, way above Philippine millgate prices.

Due to lack of canes, mills are running only at half capacity in Uttar Pradesh. Against a combined capacity of 772,000 tons, they are crushing an average of only 400,000 tons of sugarcane per day. India's delay in imports will exacerbate its sugar shortage, drive domestic prices farther north and fuel a further surge in world prices.

This is the scenario in the global sugar market. It does not imply cheaper sugar imports for domestic consumers. Hopefully, decision-makers should take this into account as they discuss the proposed sugar importation.

Government should give free rein to market forces so that producers can also benefit from their investments. As seen in the Indian example, consumers will react if price levels are already beyond what they consider fair and affordable. Let free enterprise reign.

(For reactions and suggestions, email bbacaoco@yahoo.com.)