World Sugar Outlook 2012

A consensus of analysts see sugar prices falling during 2012 with the world sugar surplus seen at just under 8 million tonnes in 2011/12 and falling to just over 3 million tonnes in 2012/13.  This is somewhat dependent on whether output will fully recover in the world largest producer Brazil, the amount of cane diverted to produce ethanol and exports from India.  Nevertheless, the surplus for 2011/12 creates a likely bearish market during 2012.

A fall in sugar prices may result in Brazilian millers diverting sugar to ethanol production.  Large harvests in Europe, India and Thailand have resulted in a higher world surplus.

It is believed that Brazil’s production will not recover significantly as the lower production figures are not due to weather or the amount of cane diverted to ethanol production but mainly due to older rations and lower yields.  Therefore, investment is required for an increase in yields and higher Brazilian production.

Raw sugar prices are forecast at around 22 cents during the second quarter during the Brazilian centre south harvest and at around 24 cents at the end of 2012.  White sugar is forecast at around $600 during the second quarter and around the same at the end of 2012.  Weather patterns could alter this forecast price projection.

The weather phenomena La Nina and El Nino are factors potentially impacting sugar supply.  La Nina tends to result in drier weather in the centre south of Brazil thereby delaying crops, harvesting and crushing.  El Nino which follows La Nina after the second quarter gives wetter conditions potentially impacting sucrose content.    La Nina also results in heavy rains, flooding in the Asia-Pacific region and occasional drought in Africa and South America.

White sugar is currently trading around $626.50 and raw sugar at 24.62 cents.

A major factor determining sugar prices during 2012 will be the price of ethanol and as a consequence the decisions by Brazilian mills to divert cane to ethanol production.  The ethanol parity is currently around the 20 cents a pound for raw sugar.  Below this raw sugar price mills would be expected to convert cane to ethanol and not to sugar.

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One response to “World Sugar Outlook 2012

  1. Standard Chartered Bank raised its average sugar price forecast for this year and 2012, citing strong demand from China and tight global inventories.

    Sugar futures traded on ICE Futures U.S. in New York may average 27 U.S. cents a pound in 2011 and 29 cents a pound in 2012, up 1 cent per pound from previous forecasts, Standard Chartered analyst Abah Ofon said in a report.

    “China’s widening import needs are providing robust support to a global market already boosted by dismal 2011-2012 sugar-cane output estimates from Brazil,” Ofon said.

    Dry weather in China “has affected the sugar-rich Guangxi region” and may reduce the country’s sugar output to 11.5 million to 12 million tons in 2011-2012, short of its estimated 14 million tons of demand, Ofon said. Guangxi produces about 60 percent of China’s sugar output.

    The spread between China’s sugar futures traded on the Zhengzhou Commodity Exchange and the ICE sugar futures has widened to a record due to tightness in China’s sugar supply, Ofon said.

    The Chinese government’s accelerated sugar sales from state reserves, which totaled at least 1.68 million tons in the 2010- 2011 season, are unable to plug the shortfall as sugar consumption in the nation’s food processing industry “has been robust,” Ofon said.

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