Reference no: EM131118604
In November, sugar prices decreased 1% to 16.26 U.S. cents a pound. Sugar prices are down almost 17% so far this year, reflecting an oversupply of sugar on global markets. Brazil is the world’s largest sugar supplier, producing approximately 35 million metric tons of raw sugar. In a note to investors, Macquarie Bank said Brazil has a “welcome cushion that has helped offset the large losses in dollar prices of produced sugar.” Which of the answer choices best explains what the bank means by a “welcome cushion”?
A. Because of U.S. monetary policy, the U.S. dollar has lost purchasing power as it has depreciated. This lower value of the dollar has increased the exchange rate of Brazil’s currency, the real. This appreciation of the real has enabled Brazilian sugar producers to increase sugar exports, since with weaker dollars more Brazilian sugar can be purchased in the U.S.
B. India is the world’s second largest sugar supplier. India’s recent sugar growing season has been exceptional, with the country on track to surpass production records. Greater quantities of Indian sugar are now competing with Brazilian sugar on the market. This increased competition was the primary cause of sugar price decreases.
C. Brazil’s currency, the real, has depreciated almost 10% against the U.S. dollar. A weaker real encourages Brazilian sugar producers to increase their exports because they receive more reals back for products sold abroad in U.S. dollars. As a result, Brazilian sugar producers receive higher revenue in reals, even though sugar prices are decreasing.
D. The International Sugar Organization estimates sugar supplies will outpace demand by a record 10 million tons for the 2015 season, which ends in December. This excess supply will cause some sugar producers to go out of business. This decrease in supply benefits Brazilian sugar producers because they will be able to produce and export more sugar at lower prices.
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