The New Food Inflation Threat

Sugar prices are shattering records, putting upward pressure on global food prices.

Prices of refined sugar have hit their highest levels in over ten years, while raw sugar approaches its costliest in over six years. Why?

India is one of the top shippers of sugar, but it has been slashing its sugar exports after rains damaged the sugar cane crop and more sweetener has been diverted to biofuel.

“Exports from India are set to almost halve to 6 million tons in the year ending in September from about 11 million tons a year earlier, and could slump to as low as 4 million tons next season, according to a Bloomberg survey of traders and analysts,” reports Bloomberg. “That reduces supply in a market that’s already tipped to show a shortage next year by consultancies Green Pool and Covrig Analytics.”

Using sugar for biofuel is the product of a government program. Prime Minister Narendra Modi wants to commit more sugar cane for ethanol production. The Indian government says that using ethanol will cut air pollution, reduce pricey oil imports, and fatten farmers’ income. What sugar gets used for ethanol will take a bite out of what gets used elsewhere.

“This season, the government plans to divert 5 million tons of sugar to make ethanol, up from 3.6 million tons a year earlier,” reports Bloomberg. “The eventual goal is to divert 6 million tons annually toward fuel production by 2025.”

The global increase in consumption and declining stockpiles have made India's supply even more crucial for the world market. The UK is already wincing at the sugar price hike as shoppers pay more for the affected grocery list items.

GOP Energy Bill Clears House

The US House of Representatives has passed the Lower Energy Costs Act by a mostly partisan vote of 225-204.

HR-1 would lower energy costs and boost oil and gas production while scaling back climate initiatives. The bill aims to expand oil and gas leasing on public lands while repealing programs established by the Inflation Reduction Act.

However, the bill likely won’t pass through the Democratic-led Senate or get signed by President Joe Biden, who has said he would veto the measure. "The Senate is not going to waste our time on a bill that sets America back decades on our transition to clean energy," Senator Chuck Schumer said before the House vote. Schumer described the bill as “dead on arrival.”

Democrats have called the bill one that “puts polluters over people,” while Republicans have billed it as a solution to high US gasoline prices that would cut regulations, promote energy development on federal lands, and eliminate climate initiatives imposed by Democrats.

The Coal Price Crash

Coal prices in the US and Australia have dropped due to milder-than-usual winter weather and falling natural gas prices.

“Per data from the U.S. Energy Information Administration (EIA), the average weekly coal spot price in Central Appalachia stood at $88.80 per short ton, and that in the Illinois Basin was at $78.45 per short ton in the week to March 24,” reports Oilprice.com. “Coal spot prices were unchanged from the previous week, but they have plunged by 57% since the beginning of this year.”

Despite this, coal prices still need to fall further to become competitive with natural gas for power generation. Renewables are also growing into a bigger competition to coal in the US, with power generation from renewable sources surpassing coal-fired generation for the first time in 2021 and repeating the performance in 2022.

But as coal retires, reliability becomes a growing problem in the American electricity sector. Plus, electricity prices move more closely with natural gas prices than with renewables. Natural gas makes renewables possible because gas turbines can ramp up to meet demand when renewables fail. If gas prices get high, so will electricity as about 40% of America’s electricity comes from natural gas plants.

If coal is on the way out in developed countries like America, then people need to think clearly about what it’s taking with it.

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Conversation Starters

1. Crescent Point cut a big shale deal in in Canada. “Crescent Point Energy Corp. is accelerating its shift into Alberta’s shale plays with a C$1.7 billion ($1.3 billion) acquisition of Spartan Delta Corp.’s assets in the prolific Montney formation,” reports Bloomberg. “The purchase will add 600 drilling locations and production equivalent to 38,000 barrels of oil a day, Calgary-based Crescent Point said Tuesday. The cash acquisition — which will be financed through Crescent Point’s existing credit facilities — immediately adds to key per-share cash flow metrics, the company said.”

2. Drax is looking for a CCS deal in the United Kingdom. “British power giant Drax surged by 5% in early trading on Thursday after it disclosed that it was in talks with the government about a proposed carbon capture project,” reports Oilprice.com. “Britain intends to bolster its energy security and independence through investment to move towards more affordable and cleaner energy sources. One such initiative includes carbon capture and storage projects. Drax aims to capitalize on this push and develop a £2 billion CCS project alongside its 2.6 GW biomass power plant in northern England. Drax paused the project temporarily, asking for clarity from the government over the funding model.”

3. Shell is ditching a Singapore fuel project. “Shell has decided not to go ahead with two projects it was studying to produce biofuels and base oils in Singapore, a company spokesperson said on Thursday,” reports Reuters. “Shell announced in late 2021 that it was studying a 550,000 tonnes per year project (tpy) at Singapore's Bukom Island to produce sustainable aviation fuel (SAF) to supply major Asian hubs such as Hong Kong International Airport and Singapore's Changi.”

Crom’s Blessing