Market Position
Since May prices have risen following the late start and downgrading of the Brazilian 2010/11 crop (down 25% year to date). Early estimates for the 2011/12 season indicate a rise in production as producers around the world respond to the higher sugar prices and increased planted area, following three years stock draw downs totalling 25 million tonnes, however the sugar balance sheet is at times out of step with the actual physical market. The growth forecast will come from Northern Hemisphere countries which imports 65% of global production and accounts for 78% of global consumption. In contrast to the Southern Hemisphere production supplies over 90% of the global raw sugar exports.
Europe
The summer will be the point of lowest stocks and the commission has announced a need for a further 200,000m/t of TRQs white/raws totalling 500,000m/t of duty free (€98m/t) import licences, following a third consecutive year of stocks draw down. Following a difficult beet harvesting campaign which saw autumn rains (which slowed the harvest) followed by November frosts (slowing access to fields & damaging foliage) and subsequent repeated cycles of thawing and freezing, much of the beet remained unharvested and abandoned in the New Year. This was compounded by the reduced beet harvest of Russia/Ukraine which suffered from a summer heat wave and drought. Sugar beet planting for the 2011/12 campaign resulted in an area increase of 6%. Despite the historically dry spring growers have reported a successful crop establishment. The rainfall in June should provide a high sucrose yield. The majority of EU beet is two weeks ahead of last year and the long term forecast for the 2011/12 crop is to produce 17.4 mlt of sugar, up 2 mlt on 2010/11.
Brazil
The Centre South experienced severe rains at the start of the campaign in May which has increased pressure to load port logistics. Several years of under investment in cane renovation to reduce costs has led to an increasing risk of disease, exacerbated by dry weather last year, resulting in average age of the cane rising from 3.8 to 4.1 years, which has reduced the sucrose yield by 6kg per tonne compared to last year. The downgrading of the crop has forced the trading values to rise again. Sugar production estimates for the 2010/11 crop is down 3.3% to 32.4mlt, the first drop in more than five years. Since 2008 Brazil has suffered growth investment with only 5 new mills estimated to be built in 2011/12 (10/11=10, 09/10=19, 08/09=30, 07/08=30). With 90% of vehicles now fitted with flexible fuel engines, the demand for bio-fuel has increased 15% year on year. Currently 45.8% of crushed cane does into producing sugar and 54.2% is turned into ethanol. By the year 2020 the forecast is 31.5% sugar and 68.5% ethanol. The minimum level of anhydrous ethanol in gasoline has been reduced from 20% to 18%, with sugar offering better returns than ethanol, creating a short term supply crisis, with Brazil is now importing ethanol from the USA. To meet the growing demand an extra 50-60mlt of cane needs to be available, but growth forecast for the next 24 months is at best 12mlt. July/October 2011 contracts are trading at 31.3cents/lb. 2012 contracts are currently trading at above 21cents/lb which is a premium to production costs taking into account capital and debt servicing.
Thailand
Following a surge in production due to prolonged dry spell during the harvesting campaign there has been an easing on supply tightness, with sugar production at 9.6mlt or 40% increase of crushed cane, surpassing all previous records. The export availability was around 6.7mlt, this triggered the fall in world prices in early April. The 2011/12 crop is five months away, but high prices have encouraged farmers to increase production, although the Thai industry appears to be reaching its crushing capacity and getting product to the export market has proved to be a problem. Similar increases in the Philippines & Vietnam has eased the supply to the Asian market which relied on Brazilian supply last year.
India
Cane production has come to an end with the sugar production reduced by 1.4mlt at 26.3mlt, due to lower cane yields and lower sucrose content, as a result of heavy rains at the end of last year’s monsoon season. 1.5mlt of sugar was exported this season due to high domestic prices. The forecast for 2011/12 crop is limited growth due to the mills being at crushing capacity and will fall short of the production record of 2006/07.
Australia
Last year’s wet weather resulted in 18% of cane left not harvested. January’s flooding in Queensland and Brisbane has left cane fields partially submerged. Harvesting the 2010/11 crop started early due to the large amount of cane stood over from last season. The full extent of the damage from the rains in 2010/11 will be known in the coming months; potentially 25% of the crop could be damaged. Sugar production estimates for 2010/11 crop is 3.6mlt compared with 4.5mlt in 2009/10.
USA/Mexico
Cane production in Florida is expected to fall due to 12 days below freezing temperatures severely damaging 2010/11 mature crop and 2011/12 newly planted crop. The beet crop in four states was delayed in planting due to unseasonably wet and cold weather in April/May. In Mexico cane production ended slightly down at 5.2mlt due to frost damage of mature crop. Total cane sugar production for North & Central America is estimated at 14.7mlt.
China
Cane crushing is coming to an end with production down 5% at 6.7mlt due to severe drought in the first half of 2010. The beet crop was 800,000 tonnes with total sugar production at 11.7mlt.
