Bumper Harvest

Monday's sharp price drop was driven by signs that Brazil, the world's biggest producer of sugar, is on track for a larger harvest than expected.

The South American country, which accounts for roughly 25pc of the world's 180 million tonnes of sugar output each year, is mid-way through its crucial harvesting and crushing period which takes place between April and September. Dry weather in June helped boost yields, so the harvest will be better than expected, adding to an already oversupplied global sugar market.

Fall of the real

The value of the Brazilian real has fallen 17pc against the US dollar this year. As the value of the Brazilian currency falls, it encourages producers and exporters to sell supplies onto global markets because it becomes more profitable when they convert dollar-denominated sales back into local currency.

Brazil’s currency has more than halved in value against the US dollar since 2011 as the economy grapples with rising inflation and political infighting over austerity measures.

End of quota system

European sugar producers enjoyed many years of profits as the EU quota system kept prices high and helped shield against outside competition.

But that quota system is set to end in 2017 and new competitors are already scrambling to enter the lucrative European market with cheaper imports.

China increases alternatives

Kanbo International, the Chinese producer of artificial sweetener Sucralose, has announced plans to push into the North and South American food and beverage market.

The manufacturer is adding 3,000 metric tons of sucralose capacity by mid-2015, which will create the largest sucralose facility in China, according to broker Liberum.

As alternatives to natural sugar flood the global market, prices for the real stuff declines.

The dollar

The US dollar has been growing stronger, boosted by a resurgent American economy and the prospect for a rate rise in the next few months. The US dollar index, which tracks the price of the US dollar against the world’s currencies, has increased by more than 20pc within the past year.

The value of the US dollar typically follows an inverse relationship with commodities. When the dollar strengthens against other major currencies, the prices of commodities - such as sugar - typcially drop. When the dollar weakens, commodities generally move higher.The main reason for this is because most commodities are freely traded in international markets and prices are quoted in US dollars.

Foreign buyers will purchase commodities with dollars, so, when the value of the dollar drops, they will have more buying power, and demand increases. Similarly, when the value of the dollar rises, they have less buying power and commodities become more expensive, muting demand and sending commodity prices lower.