Pro­duc­tion will rise again, even­tu­ally

Finweek English Edition - - MARKETPLACE -

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.

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