Ben Eastick Written by Ben Eastick

Bumper Sugar Crops To Increase Global Surplus

Market Position
October has seen sugar prices continue to decline, trading around 14 c/lb, compared to 17 c/lb in May and 20.5 c/lb this time last year. This is a result of a large expected global surplus in 2018, from estimated strong production increases in the EU, India (both having just begun harvesting), Russia and Thailand. As usual a note of caution must be heeded as Brazil’s 2018/19 production will be based on older canes, which will require ideal weather conditions to maximise sucrose yields and the sugar to ethanol mix will change over the coming months. The predicted global supply-demand surplus is over 6 mln tonnes for 2017/18 after two years of deficits. Global consumption remained at 180.2 mln tonnes in 16/17. For 2017/18 consumption is expected to raise by 2.2% to 184.2 mln tonnes as a result of Indian prices dropping and increased domestic production. The weather in the next four months will be critical for northern hemisphere harvesting and Brazilian intercrop with the potential for La Nina conditions increasing. La Nina could affect key sugar producing countries by creating dryness in Brazil and excessive rains during the European and Asian harvests.
The sugar year ending September 2017 saw the abolition of EU sugar beet production of quotas, the first time producers have been freed from marketing limitations since 1968. This will prompt a large increase in EU sugar production for 2017/18. The commission may have published incorrect sugar production figures in July, which would result in a carry forward of 1.4 million tonnes, rather than the 700,000 tonnes originally forecast. With EU sugar beet harvest having just begun, with high beet yields being reported in Germany, France, Poland and the Netherlands. In the UK domestic production is set to exceed 1.4 mln tonnes, an increase of 900,000 tonnes. Southern Europe has reported lower yields due to drought in the summer. The weather looks encouraging for Northern Hemisphere production. The EU production in 17/18 likely to exceed 20 mln tonnes, after an increased sown area by 16%, plus with the additional carry forward stock, there is real potential for the EU to start exporting onto the world market. Current world market prices are not attractive to European producers, who will try and sell their additional stocks to the southern deficit regions of the EU. The 2.3 mln tonnes of allowed imports from African, Caribbean and Pacific regions fell to 1.3 mln tonnes in 2016/17 and will continue to lose market share as a result of the change in EU policy. Although EPA/EBA countries will continue to benefit from quota and duty free access, the 15.7 mln tonnes required for food use will easily be met by locally produced beet sugar.
Russia & Ukraine
In Russia and the Ukraine the majority of beets has been harvested. Russia is estimated to produce 6.5 mln tonnes in 2017/18, an increase of 5% over last year. Ukraine has increased planted area by 8% for sugar beet, so sugar production for 17/18 is expected to surpass the 2 mln tonnes of 16/17. Combined sugar production from these two countries is estimated at 8.4 mln tonnes for 17/18. Europe will have a big surplus of white sugar over the coming 12 months. There will be pressure on producers to export their surplus sugar to avoid deflating prices in their domestic markets. With Russia and The Ukraine likely to export around 1.4 mln tonnes of sugar, there will be stiff competition from the EU for white sugar exports.
Harvesting which began in April continued to be disrupted in October due to heavy rainfall, slowing the crushing of the canes and reducing sugar content, but this will help improve the outlook for the ageing cane in 2018/19. The wet weather and lower sugar prices has incentivised millers to produce fuel until the end of the crop, with ethanol prices remaining strong. Fifty two percent of the 2017/18 crop will be processed into ethanol. Mills will start to shut down during the month of November. The latest estimate for the 17/18 sugar production is 36 mln tonnes.
The amount of rainfall this year has been perfect to benefit the cane crop. The dry season has begun ideal timing for the cane fields, ahead of the start of harvesting later in the month. Thailand is likely to produce a bumper harvest and increase sugar production above the 10.2 mln tonnes produced in 2016/17.
The cane harvest is just starting up after Diwali, a slight delay due to post monsoon rains. Sugar supplies during the festive period were not affected due to imports and the government managing lower prices by limiting stock kept by millers and traders until 31st December. The government is trying to incentivise farmers to plant more cane for the 2018/19 season after two consecutive years of low monsoon rainfall and planted canes, resulting in sugar production falling below consumption. With adequate monsoon rains this year and a delay to the harvesting of the 2017/18 crop and a record cane acreage for 18/19, India looks set to have a sugar surplus for the next two years. Estimates say the country will produce 25 mln tonnes in 17/18, up 25% on last year, subject to weather conditions. Interestingly the country’s sugar consumption is 24.4 mln tonnes.
Southern Africa
Swaziland traditionally a main supplier to the EU has suffered two years of drought, leading to strong local prices, so future sales will continue to grow in regional markets to replace exports to the EU. Rising domestic consumption will also absorb any additional sugar produced.
Harvesting which commenced in May reached its peak in August and is 72% complete, with crush finishing at the end of this month. The 2017 crop is estimated to be 8% lower than last year, due to drought in Queensland south and the effects for Cyclone Debbie in late March which affected a quarter of the cane crop in the central region. The rains however have improved the sugar content so it is possible that sugar production may match the 4.7 mln tonnes produced in 2016. Australia’s sugar consumption remains stable at 3.7 mln tonnes, with 3.7 mln tonnes being available for export, mainly to South Korea, Indonesia and Japan.
Seventy percent of Mexico’s mills have started an earlier crush due to more cane availability, with an early prediction of 6.2 mln tonnes, similar to 2015/16 crop. Mexican sugar stocks are 2% lower than last year, which will keep domestic prices high. Total exports to the US for 2016/17 were 1.2 mln tonnes with estimates for 17/18 projected at 1.7 mln tonnes. Hurricane Irma crossed Florida in September, affecting most of the cane growing areas. Battered canes have been stripped of leaves which affects growth and flooding affected most of the fields. Harvesting which usually begins in October has been delayed. Sugarcane production for 2017/18 is estimated at 2.0 mln tonnes due to lower sucrose recovery, this compares with 3.8 mln tonnes last year. Total US crop will be reduced this year to 3.8 mln tonnes, resulting in approximately 100,000 tonnes less sugar which will need to be replaced with additional Mexican quota. US beet production for 17/18 is estimated at 5.1 mln tonnes, with lower yields expectations in Michigan due to dry weather and wet weather in Minnesota.
Imports have fallen 38.9% to 2.29 mln tonnes for 2016/17 as higher tariffs has made world market sugar more expensive, after lobbying by domestic mills to support local industry. The area under cane planted for the 2017/18 increased by 3.4%, although this is smaller than first anticipated. The cane harvest is about to commence for the 17/18 campaign, with estimates of 11.2 mln tonnes of both beet and cane sugar being produced, compared to 10.1 mln tonnes in 2016/17. This will mean that China’s imports may rise to 6.0 mln tonnes in 17/18.