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.
EU white sugar price is 723 Euro/MT almost twice the prices on futures markets.
This is the sugar price within the EU community. The EU reference price stands at 404 Euros/MT.
Copersucar lowered its forecasts for the Brazilian cane harvest to 580 million tonnes from 595 million tonnes due to frost and higher rainfall. However, sugar production figures were raised to 33.5 million tonnes from earlier estimates of 32 million tonnes due to a greater switch from ethanol production to sugar as a result of the depressed Brazilian currency. Copersucar added that returns from sugar production and exports were 10% to 15% higher compared with anhydrous ethanol production.
Unica’s forecast for sugar production is 35.5 million tonnes while Canaplan’s latest forecast is 34.5 million tonnes. So Copersucar may have undershot in its earlier estimates. Final figures for sugar production in Brazil look likely to be around 34 million tonnes which is a tad lower than last year’s 34.1 million tonnes.
Sugar cane yields in the State of Sao Paulo increased to 85.7 tonnes per hectare in the period between April and July which is an increase of 15% compared with last year.
Sucrose content increased by 10% when compared to average July figures. Sucrose content was 133kg per tonne which is an increase of over 4% from June and over 3.5% compared with last year.