Production will rise again, eventually
Illovo results came in as expected, under pressure from the drought, but the company seems very bullish on the global sugar price, as did Tongaat (to a lesser degree) a week earlier. Rising sugar prices are attributed to a global deficit and the stronger Brazilian real (as the large global producer this has increased prices). All well and good, but surely as rains return and productions increases again, this will negate the demand issue as more sugar is grown? This should see prices moving lower again. This is the issue I always come back to with commodities – as demand increases, so does production, in this case production was hit by drought but no drought lasts forever. That said, I am interested because when the drought lifts we will see production up and that should offset price weakness, resulting in much-improved profits in the shorter term.