Rabobank in its third quarter sugar report estimates the global sugar surplus for 2013/14 at 5.4 million tonnes.
The surplus is not only the fourth consecutive surplus but also with rising stocks and an increasing stocks to consumption ratio.
Bad weather in Brazil could lead to a downward revision of Center South production and a possible increase in prices. Heavy rainfall in Russia could have a similar impact on the beet crop and also see a lift in prices.
Otherwise and in the absence of new information prices are expected to see upward resistance.
The Indian Sugar Association (ISMA) stated that the sugar industry may face a difficult year with opening stocks for the 2013/14 season that commenced in October standing at 8.5 million tonnes up from opening stocks of 6.2 million tonnes for the 2012/13 season equivalent to three months demand.
ISMA estimates production during the season to be 25 million tonnes and demand to be 23.5 million tonnes.
State support may be required by the industry. Payment arrears to farmers are also expected to increase.
Crushing is expected to start after announcement of the State Advisory Price (SAP). The sugar surplus is likely to result in mills looking to export sugar putting downward pressure on sugar prices.
In response to a recent question concerning some of the major factors influencing sugar prices a brief summary below outlines such factors.
Brazil is the world’s largest sugar producer and exporter with over 20% of production, over 40% of exports and an even greater share of raw sugar exports. This implies that Brazil will have a substantial influence on the world sugar market and sugar prices. Most of Brazil’s sugar is produced in the Center South region with Sao Paulo and Parana being the main producing states. Production costs in Brazil’s Center South are the lowest globally. Therefore the cost of producing sugar in Brazil and the Centre South region more specifically has direct implications for world sugar prices. World sugar prices denominated in US dollars and Center South sugar prices exhibit long-run co-integration. Naturally the Brazilian Real through its exchange rate with the US dollar also plays an important role in world sugar prices.
The most obvious influence on sugar prices is the impact of annual world supply and demand balances. These can be analysed through production minus consumption figures and the ratio of world sugar stocks to global consumption. Stocks can magnify or reduce the impact of a sugar surplus or deficit obtained from analysing production and consumption figures.
Another major factor affecting world sugar prices is the error that is made when estimating consumption and production figures. Once estimates are revised or final figures published the correction can have an impact on sugar prices. Figures showing a world sugar surplus that eventually after revision show a deficit may lead to a rise in prices to adjust for the error.
There are other short, medium and long-term influences on sugar prices. However, the above are probably a few of the most significant.
World production is expected to fall by 1.2% to 180.8 million tonnes, the first drop since 2008-2009, and demand expected to increase by 2.1% to 176.3 million tonnes. The surplus of 4.5 million tonnes is the main factor along with weak currencies in Brazil, India and Thailand likely to put downward pressure on sugar prices throughout the year.
Sugar from producer countries and that available for export is expected to increase to a record 57.1 million tonnes while import demand will decrease for a third consecutive year. World sugar stocks are expected to rise 0.5% to 74.4 million tonnes at the end of the 2013/14 season while reserves as a percentage of consumption will fall to 42.2% from 42.9%.
Peter Baron, Executive Director of the International Sugar Organization commented at the 19th International Asia Sugar Conference “Production is erratic, depending on the weather and rainfall, but consumption is relatively resilient.” Peter Baron added that growth was likely to average about 2% per annum which would produce demand of 201 million tonnes by 2020.
“There is bearish pressure on prices, at least until we see how this 13/14 season goes on. Personally, I don’t think prices will go below 15 cents,” ISO Executive Director Peter Baron stated on the sidelines of the International Asia Sugar Conference.
Sugar exports from India, whose currency has been Asia’s worst performing this year, may exceed 1 million tonnes during the 2013/14 season according to Narendra Murkumbi, Director of Shree Renuka Sugars. Indian sugar exports may exceed 300,000 tonnes this season according to the National Federation of Cooperative Sugar Factories.
Peter Baron, Executive Director of the International Sugar Organisation, said during an interview at the 19th Asia International Sugar Conference that he expected sugar prices to remain under pressure due to a weak Brazilian currency making dollar denominated sugar exports more lucrative for producers. Producers in India and Thailand find themselves in a similar position.
Surplus sugar is expected to be 4.5 million metric tonnes for the season commencing in October. Sugar prices are expected to fall for the third consecutive year due to a sugar glut forecast at over 10 million tonnes. The sugar price has dropped by approximately 40% from 30 year highs in 2011 since production was increased by a number of countries. Even though there will be another surplus in the 2013/14 season commencing this October the size of the surplus is falling. Nevertheless, this surplus will contribute to further falls in the sugar price. Exports from India, the world’s second largest sugar producer, will only compound the problem by adding to the glut. India’s weak currency is expected to result in a significant increase in sugar exports as importers take advantage of the currency’s abysmal performance.
Peter Baron believes that prices will remain under pressure for the foreseeable future. With production higher than import demand and stock to consumption ratios above 40%, only something fairly significant is likely to alter this position.
October Sugar closed at 16.46 cents per pound on ICE, a fall of 16% on the year. Sugar futures hit a high of 36.08 cents per pound in February 2011 and a three-year low of 15.93 per pound in July. Weakening domestic currencies within producer states incentivised producers to export dollar denominated sugar rather supply the domestic market adding to the global glut. India’s currency the Rupee has fallen by 14% this year and the Brazilian Real by 13%.
Peter Baron added that in Brazil, production costs were 17 to 18 cents and that this was used as a reference by global producers. The Real’s depreciation against the dollar has softened the blow for Brazilian sugar producers from falling sugar prices.
Thailand, the world’s second largest exporter, has also seen its currency the Baht drop by over 4%. Thailand will crush 11 million tonnes from a record 105 million tonnes of sugarcane in the year starting this November according to Thai Sugar Millers Corp.
October white sugar futures closed $16.50 lower at $483.70 per tonne. While December futures declined $15.80 to $473.00 per tonne.
Reports indicated that Intercontinental Exchange (ICE) the new owner of the London white sugar futures contract may offer container delivery which would be more in line with a growing trend in the industry. The white sugar futures contract currently only accepts deliveries in bulk vessels, This is seen by some as unrepresentative of the market given current growth in container trade which is for many becoming the preferred method of transport in the physical sugar market.
Also on the cards is a possible launch of a new refined sugar contract for ICUMSA 150 which is a lower grade of refined sugar compared with ICUMSA 45 and would better reflect sugar delivered originating in Brazil, India, Thailand and Palistan.
Minister K.V. Thomas confirmed that sugar prices have remained stable since April 2013 after deregulation of the sector. Deregulation has given mills the freedom to sell in the open market and no obligation to supply the sweetener at subsidized rates to government ration shops.
Sugar production during 2012-13 sugar season is estimated to be about 24.8 million tonnes as against domestic consumption requirement of about 23 million tonnes. The import duty on import of sugar has been kept at moderate level of 15 per cent, he added. Sugar is currently available in the market at Rs 35-40 per kg in the capital.
India is the world’s second largest producer and biggest consumer of sugar. India’s rupee has tumbled 14% this year. Exports may increase threefold next year as the depressed domestic currency increases demand for sugar exports from the Middle East and Asia. Exports could reach 1 million metric tonnes according to Renuka Sugars with the National Federation of Cooperative Sugar Factories suggesting that exports this season may exceed 300,000 metric tonnes.
Indian exports may simply add to global sugar stocks further depressing global prices. Sugar prices have fallen for three years making the decline the longest since 1992. Global supply in the 2013/14 season commencing October will exceed demand by 4.5 million tonnes.