Monthly Archives: February 2011

Will India make up its mind?

No decision was reached during the previous meeting on whether to permit up to 500,000 tonnes of sugar exports under Open General Licence (OGL) due to the absence of a number of government ministers.  Discussions were widened to include a number of Indian government ministers due to the political sensitivity of the ‘agflation’ issue and the risk of food price rises.  A decision on the matter may be made in the next two weeks.

India’s indecision has ensured that sugar prices remain high in the face of tight supply.  India is the second largest producer of sugar and its largest consumer.

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Ukraine to increase sugar beet land

Ukraine is likely to increase its agricultural land for sugar beet by 10% to 550,000 hectares during the year.  White sugar produced may increase from 1.5 million tonnes in 2010 to 2 million tonnes this year.  1.3 million tonnes of white sugar were produced in 2009.  Sugar refineries processed 13.5 million tonnes of beet in 2010. In 2010 the sugar beet area was increased from 350,000 hectares in 2009 to 500,000 hectares.

Ukraine consumes approximately 2 million tonnes of white sugar. It used to be the USSR’s sugar factory producing 5 million tonnes.  Beet sugar does not compete well with sugar from cane in the absence of subsidies or incentives.

No more 10% falls in less than a minute for No.11 sugar futures

In early February raw sugar futures prices on ICE fell by just under 10% in less than a minute.  Such trades will not be possible from 1 March 2011 when ICE is to reintroduce its implied matching engine.

The change will become effective when ICE’s implied matching engine resumes.  It is not yet clear what ‘acceptable trading ranges’ and ‘acceptable volatility’ means.

The implied matching engine uses an available bid to generate a spread quote which mathematically irons out the possibility of extreme price deviations. Thereby ensuring, in most cases, a correlation between different contracts and preserving the spread differential.

Not the best news for algorithmic traders.  Another proposal is the introduction of circuit breakers to prevent extreme price spikes.  ICE is consulting on the idea.

More on the EU import quota of 300,000 tonnes of sugar

The EU has opted for zero duty on an import quota of 300,000 tonnes instead of the previously suggested reduced duty applied to its tendering process.

The European Commission announced following a meeting of the sugar management committee that fixed volume imports at zero duty would help smaller companies obtain sugar supplies.

The EU’s current duty is Euro 339 per tonne on raw sugar and Euro 419 per tonne on white sugar.  The new import quota will be managed on a monthly basis.  Additional import quotas are likely to be proposed during 2011.

The Commission initially agreed to a tendering process which would give it more control over the volumes imported and prices paid. Britain, Sweden and Portugal protested that a tender process with minimum duties and volumes forming part of the bid process would only benefit larger importers at the expense of smaller rivals. The new plans are to initially be adopted by the European Commission before a vote on the matter in early March.

More on the EU decision to sell 500,000 tonnes of out of quota sugar

The European Commission has approved the sale of 500,000 tonnes of out of quota sugar within the EU.  The additional levy of Euro 500 that usually applies to out of quota sugar will not apply.

EU quota sugar is approximately 13.9 million tones.  EU consumption is approximately 16.5 million. EU exports and imports account for the difference. Some out of quota sugar can be exported while the remainder is sold either to industry or as food.  The additional levy is applied when out of quota sugar is sold as food.

Starting stocks plus in quota sugar plus imports are meant to cover EU consumption but high world sugar prices have made sugar imports difficult.

Brazil’s next sugar cane harvest to fall but sugar production to rise

Brazil may see its first fall in sugar cane harvest in over a decade during the 2011/12 season. The reason being the drought of 2010 which is a consequence of the La Nina weather phenomenon.  Sugar cane harvests have increased by over 50% in the past decade. The Center South’s harvest ended in January with approximately 557 million tonnes of sugar cane against 596 million tonnes forecast.  Rains over the next few months will be an indicator of what to expect during the next harvest.

However, sugar production is still forecast to increase as less sugar cane is expected to be diverted to ethanol production while sugar prices are at near 30 year highs. With this increased sugar production aimed at capturing higher sugar prices and increased revenues, sugar prices may be substantially lower by the end of the year due to the excess world supply that may follow.

Russia reduces import tariff on sugar to $50 per tonne

The customs union between Russia, Kazakhstan and Belarus has confirmed that Russia will reduce its import tariff on raw sugar from $140 to $50 per tonne for a period of two months commencing 1st March 2011.

Following bad weather Russia is facing a reduced beet harvest and the revised tariff is to facilitate sugar imports without causing sharp price rises.  Agflation and rising food prices have resulted in political instability in other countries.

Refineries in Russia had recently reduced white sugar production in anticipation of the decision.