Ben Eastick Written by Ben Eastick

Sugar Price Fluctuation As A Result Of Crisis On Financial Markets & Varying Weather Patterns.

Market Position
A global sugar production surplus is expected for 2011/12, estimated at 8.5 million tonnes, following four years of production deficits and stock drawdown. Prices in September lowered following the news of a slight improvement in the Brazilian crop and early indications of impressive beet yields throughout Northern Europe driven by good growing conditions and an increase in area planted. However, prices rallied in October as a result of the reductions in Mexican and Thai crops, which was further compounded by external macroeconomic factors, particularly in light of the escalating speculation over the fate of the Euro. For 2011/12 beet sugar will account for 22% of global sugar production and will continue to rise due to production costs falling closer to that of cane from developing countries, coupled with global shifts in economic strength. Cane however will still remain the most competitive sugar crop.

Europe
The EU commission has proposed an end to the system of national sugar production quotas, from October 2015, following a second consecutive year of sugar shortages estimated at 1.1 mln tonnes. The proposal would also allow an increase of EU sugar exports which currently are capped under world trade rules (due to the EU quota system). The current EU production quota is 13.337 million tonnes of beet sugar, from the estimated total production output of 17.5 mln tonnes for 2011/12 crop. 3.5 mln tonnes of cane sugar is imported from preferential countries. Near record outputs are expected from northern beet growing regions, as far south as Austria and Switzerland, with France and Germany each expected to produce 4.5 mln tonnes. In contrast, southern European states of Portugal, Greece and Italy has seen significant reductions in planted area since the EU reform with an expected quota shortfall of 500,000 tonnes. The shortage of sugar in the EU market has seen rapidly rising prices throughout 2011. For 2012 the tight domestic market will require the EU Commission to authorise imports over and above preferential suppliers and to re-classify beet sugar into domestic quotas.

Brazil
Recent news of the Brazilian crop has reported a slight improvement following a poor forecast, coupled with the Brazilian Real weakening allowing exports to become more competitive. Compared with this time last year cane crushing is down 7.3% at 436.5 mln tonnes, and sugar production is down by 3.1% at 27.7 mln tonnes. However due to a significant increase in total recoverable sugar from the cane and an increase of cane being diverted away from ethanol production, there has been an improvement over the original forecast. Brazil’s output has fallen for the first time in six years and is expected to be down again for 2012/13, mainly due to a lack of investment as reported in depth previously (see September blog).

Thailand
Sustained heavy monsoon rains, possibly caused by the strengthening La Niña phenomenon has created the worst flooding in the country for over 50 years. Luckily the main cane growing regions have remained relatively dry, although an estimated 5% of the cane crop may be affected by floods. An estimated second consecutive year of record production of 100 mln tonnes of cane will produce 10 mln tonnes of sugar. The flooding delayed the beginning of the harvest to the middle of November, which in turn will delay exports and probably reduce sucrose yields at the end of the crushing campaign. This will have an adverse affect on the white sugar market which is under supply pressure and residual exports from 2010/11 campaign has been delayed due to logistical constraints caused by the flooding.

India
The harvesting campaign has been delayed in the Maharashtra region due to protracted monsoon rains, coupled with a price dispute between famers and millers in Maharashtra and Uttar Pradesh, the sub-tropical region of India. The government seems reluctant to allow large quantities of sugar to be exported until there is an accurate size of the crop and they are delaying export permits, much to the annoyance of the millers.

Australia
Last year’s crop suffered from La Niña influenced rainfall followed by the devastating Cyclone Yasi in February, leaving a considerable amount of cane not harvested and stood over for the 2011/12 season. Early harvesting reports show that the cane has recovered fairly well and estimates for the season are up from 3.6 mln tonnes to 3.9 mln tonnes, but still less than the 4.5 mln tonnes produced in 2009/10.

USA/Mexico
North American sugar beet harvest is underway with the USDA lowering its projection for domestic sugar production following wet weather dampening yields. Reports from the top four producing states show that harvesting is slower than this time last year. Estimates for Mexico’s cane crop are lower at 5 million tonnes due to draught and frosts earlier in the year.