Tag Archives: sugar production

Factors influencing #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.

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#Sugar stockpiles add to the global glut

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.

 

Earthquake damages sugar refineries

Following the earthquake last week sugar refining in Japan is now focused in the west of the country away from affected regions. Two refineries were damaged in Chiba.  Although the damage is thought to not have been too serious.

Japan has 12 sugar refineries and imports approximately 1.5 million tonnes of raw sugar per annum.  Domestic raw sugar output is approximately 650,000 tonnes.  Japan makes up approximately 1.5% of global consumption.  Thai sugar for the Japanese market was not being offered following the earthquake.

Efforts are ongoing in Japan to cool two nuclear reactors with water.

 

Tereos invests $130 million in Brazilian natural sweeteners market

Tereos is seeking to expand into the natural sweeteners market in Brazil by investing $130 million in a starch factory with further investments possible.  The company seeks to tap into the fast expanding market that is evolving and becoming increasingly sophisticated, in the sense that the ingredients being used aim to improve the quality and property of food products resulting in lower use of calories and higher fibre content. The market is thought to be expanding by between 5% to 10%.

The Brazilian investment compliments the company’s sugar production in Brazil and allows it to further expand outside Europe.   In 2010 Tereos announced a joint venture with Malaysian Pure Circle to develop products made with natural sweeteners to compete with existing artificial sweeteners saccharin, aspartame and sucralose.

Cargill recently announced an investment in a corn processing mill in Brazil to produce starch and sweeteners.  Brazil’s Petrobras concluded a $1.2 billion deal with Tereos in 2010.

Tereos invested in Brazil’s sugar market a decade ago by establishing a joint venture which was followed by acquisitions and gradually increased market share.  Tereos is now Brazil’s third largest such group.

Brazil is the world’s largest exporter of sugar and responsible for more than 50% of sugar trades.

Mauritius sugar production falls 3.2%

Mauritius sugar production fell by 3.2% in 2010 to 452,473 compared to 2009 whereby the forecast for the year was 450,000.  The sugar industry in Mauritius makes up 3% of its GDP.  The 2010 crop was priced at MUR 13,500 per tonne up from MUR 12,800 six months ago. The rupee has strengthened against the EURO from MUR 44.50 to MUR 41.10 and higher Mauritian prices reflect higher prices in the EU and a weaker EURO.

Russian raw sugar imports down for 2011

Russian raw sugar imports are expected to be down for 2011 to 1.9 million tonnes from 2.1 million tonnes in 2010.  Domestic production of beet sugar is likely to be at a historical high in the region of 4.2 million tonnes.  Russia recently decided to cut tariffs on raw sugar imports to $50 effective from March. A move that may see a temporary slowing in imports until the tariff becomes effective.

High domestic beet sugar production may result in imports slowing in the second half of the year when further downward pressure on domestic prices is expected.

India’s OGL sugar exports doubtful

Raw sugar futures were up almost 2% heading for 30 year highs once again to close at 32.64 cents per lb.  The rise was after India announced that it had revised down its production outlook for 2010/11 from 26 million tonnes to 24 million tonnes.  Weather conditions have decreased the expected percentage of sugar recovery.  The announcement is also likely to delay and diminish the chances of a positive outcome under India’s Open General Licence for sugar exports, thereby adding to world supply concerns.

Sugar price volatility is expected to remain high until the prospects for sugar supply become clearer.