How has coronavirus impacted the global sugar market?

We are living in unprecedented times. Coronavirus (COVID-19) has completely altered our livelihoods and the global economy. Lockdowns around the world have closed restaurants, cafes and offices, with almost all sporting events and concerts now cancelled or postponed. As a result, the point at which sugar is being consumed has shifted – but will this have an effect on global sugar demand?  

With countries in lockdown seeing a massive uplift in purchases of stable foodstuffs, including sugar-rich convenience foods, the transfer of sugar consumption to the private home has seen an increase in the supply of industrial sugar. With the situation certain to continue, Ragus lifts the lid on how this may affect the global sugar supply in the coming months.

Market position: lockdown causes a surge in home sugar consumption while ethanol demand plummets
Times of crisis create concerns over food supply lines. In response, agricultural commodities, such as sugar, tend to perform well. The last two weeks have seen consumers hoard bread, flour and pasta. If this continues, individual countries may have to start stockpiling foodstuffs, leading to a surge in demand for sugar.

COVID-19 hit the world just as global sugar prices were starting to recover from the 10 year low of 2018, reaching 15c/lb this February. Since the outbreak, the commodity price of sugar has plunged back to 10c/lb for raw sugar, the lowest value since 2018. Similarly, oil is now close to US $20 a barrel, halving in price due to collapsing demand.

Against this backdrop, Brazil will return as the biggest global producer of sugar, primarily due to its currency trading at a record low. This makes the losses in sugar easier to cope with for Brazilian producers and increases the margins for the nation’s many mills. In addition, falling ethanol prices at the start of the Brazilian cane crop leaves the sugar mix at 46%.

This means that, for 2020, Brazil will dictate the size of the global sugar deficit. The white sugar market is currently holding up better than the raw market, although white values have considerably decreased in the last week. The reason for this is a poor crop in Thailand, the main global exporter of white sugar, and India beginning an initial 21-day lockdown.

It is still unknown exactly how sugar consumption will be affected by the global lockdown created by COVID-19, but overall consumption could reduce by as much as 2mln tonnes, with countries already adopting isolation measures seeing a 5% reduction in sugar consumption. At Ragus, we have seen that while demand for sugar out of home has dramatically decreased, demand for sugar has increased for industrial consumers making foodstuffs for home consumption.

In terms of non-foodstuffs, the sugar demand to make ethanol for fuel is massively down, but we expect to see an uptake in the coming weeks for sugar used for alcohol production and in pharmaceuticals. We are all still unsure how long the coronavirus lockdown will last and by how much it will affect sugar consumption, but with a predicted 1% increase in global consumption pre-virus, it is now thought it will remain flat at 172.4mln tonnes.

Total global sugar production for 2019/20 is estimated to be 176mln tonnes, compared with 184.9mln tonnes produced in 18/19. These figures translate to a total global deficit for sugar of around 10mln tonnes in 2019/20.

Beet harvest concludes in Europe as lockdowns continue across the continent
Heavy rainfall since September delayed the tail end of lifting the beets. Sugar production for what was the EU 28 is estimated at 17.4mln tonnes for the 2019/20 campaign, which will result in the EU becoming a net importer for the second year in succession. Recent improved weather has seen all the beets processed and spring sowing of beets for the 2020/21 crop is now taking place, after a delayed start due to very wet February weather.

Belgium, Germany and France will see a reduced cultivated area for beet, but Austria, Netherlands, Spain and the UK hope to increase their planted area. The majority of Europe is in coronavirus lockdown, which will result in reduced consumption of sugar across the foodservices sector, but we expect to see an uplift in industrial use as indoor consumption increases. Year to date, exports of EU sugar onto the world market are down 46% and are estimated to be only 1.0mln tonnes for this season, compared with 1.6mln tonnes in 18/19.

Record-breaking beet harvest in Russian as government takes measures to ensure sugar supply
Russia’s 2019/20 record-breaking beet campaign ended this month, with total sugar production expected to reach 7.7mln tonnes, compared to 6.5mln tonnes in 18/19. Sowing for the 2020/21 crop has begun, with the area under beet expected to be 17% lower than last year. The coronavirus outbreak has seen disruptions in local transport, but the state railway has offered discounted prices for the movement of essential goods, which includes sugar, in order to ensure a stable supply.

In Ukraine, estimates for the 2019/20 beet campaign is 1.48mln tonnes of sugar produced, down slightly on the 2.0mln tonnes produced in 18/19. Concerns for the 20/21 beet crop, which is currently being sown, is that critically low moisture levels may see the crop reduce by as much as 30%.

Brazil back to world’s largest producer but is yet to feel the full COVID effect
Harvesting for 2019/20 is coming to the very end with a higher crushing rate compared to last year. The prospect for the 2020/21 crop, which starts later this month, is very positive. This is due to good rainfall, meaning moisture levels in the soil remain high, allowing for good cane development.

Brazil exported 19mln tonnes in the 2019/20 season, its lowest total in several years. With the predicted sugar mix being over 46% for the 2020/21 crop, this should add a further 10mln tonnes of exportable sugar onto the world market. With the industry being an important supplier of food, fuel and power to the country, any enforced government lockdowns as a result of coronavirus are unlikely to shut down the mills. With this looming, they are doing their utmost to crush as much as they can, preventing uncut cane from being left in the fields.

However, the spread of COVID-19 in Brazil is yet to be fully realised, so there are still risks of labour shortages and stoppages of the mills producing sugar. The ports of Santos and Paranagua are operating normally to ship the increased global demand for Brazilian sugar this year.

Disastrous crop for Thailand sees production fall to ten year low
Thailand is coming to the end of the 2019/20 harvest. A weak monsoon rainfall saw less cane available, with sugar production estimated to fall to a record 10 year low of 8.4mln tonnes, compared to 14.6mln tonnes in 18/19. Further rainfall is needed to improve cane development, avoid damaged ratoons and allow new planting of canes, or we could see a repeat of this year’s disastrous crop next year.

With Thailand being the largest supplier onto the world market for white sugar, the price for whites has held up better than the raw market. A drop in global prices, however, will make growing the crop less attractive.

All elements of the sugar supply chain affected as coronavirus takes hold in India
Coronavirus has now arrived in India. A 21-day lockdown has caused its economy to experience a major slowdown. This comes as the country’s sugar industry was already near crisis point, with reduced exports, local demand falling, and cane farmers not being paid the contracted price.

The 2019/20 crushing season was set to be significantly smaller than the previous season due to the cane area harvested being reduced by 33% and waterlogged fields in August affecting cane recovery. Shortages of labour, transport, processing material and packaging have exasperated the situation further, even before COVID-19 reached the country. As of March, the mills had produced 21% less sugar than this time last year. Now, they are temporarily closing due to cane cutters saying working conditions do not leave them adequately protected from coronavirus.

Lockdown has also effectively ended Indian white sugar exports for the short term. Private ports have declared force majeure, while the still open government ports are crippled by the labour shortages dictated by the orders for workers to stay at home. Container traffic is at a standstill and customs are operating at 5-10% capacity.

For the 2019/20 crop we estimate that 26.5mln tonnes will now be produced, down from 35.9mln tonnes in 18/19. Indian mills have supplied just short of 3 million tonnes onto the world market, of the committed 3.8mln tonnes. The total figure will be well short of the predicted 5mln tonnes. This is due to a drop in world market prices as a result of the coronavirus making overseas sales unprofitable for mills. Existing contracts may also even be cancelled. With Brazil yet to be as badly hit by coronavirus as India, it is expected they will make up for any Indian shortfalls in supply to the global market. Should they enter lockdown, however, the situation could be very different.

The impact of coronavirus on Africa still unclear
Africa will produce around 12.8mln tonnes in 2019/20, including 2.9mln tonnes for Egypt and 2.4mln tonnes for South Africa. The 2019/20 crop is slightly up on last season’s 2.1mln tonnes of sugar produced as a result of a 10% improvement in production and efficiencies from cost reductions. At the time of writing it is unclear of the implications that coronavirus will have on the African continent.

Australian government labels sugar as a vital industry
The 2020/21 harvest is due to commence in June. Australia’s government has declared that sugar is a vital industry as the country experiences coronavirus-induced lockdown.

Sugar production in 2019/20 reached 4.6mln tonnes, slightly up on last year’s figure of 4.5mln tonnes. Early estimates for the 20/21 crop is 4.7mln tonnes of sugar being produced, with the bulk of production taking place between the months of July to October.

US will need sugar from elsewhere as Mexico can’t supply required volume
The 2019/20 Mexican harvest made a delayed start. Poor agricultural yields caused a reduced sucrose extraction by up to 20%, leaving estimates for the sugar produced for 2019/20 at 5.6mlt, compared to 6.4mln tonnes in 18/19. The US has a large shortage of sugar of around 200,000 tonnes, due to an 8.5% drop in cane sugar production.

Despite a slight increase in beet sugar production, US sugar production will be at its lowest level since 2010/11 at 7.4mln tonnes in 19/20. The US will need imported sugar from other countries as Mexico won’t be able to supply the volume required to make up the shortfall. The coronavirus outbreak, however, may justify lower imports due to a reduction in out of home consumption.

China makes up for lost harvesting time
Coronavirus disrupted the cane planting in the Guangxi province, but increased mechanisation and sugar extraction rate has already made up for the delay and is now 95% complete. The sugar processing season has also been shortened due to the COVID-19 lockdown.

Compared to this time last year, beet sugar production is down, while cane sugar production is up. Overall sugar production is up on last year due to an early start to the cane crush, with the beet factories having completed their campaign for 2019/20. Total sugar production for 2019/20 is estimated at 11.4mln tonnes.

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