Ben Eastick Written by Ben Eastick

Global sugar market report 2020/21

The six months since March have been some of the most turbulent experienced in a generation. Each level of the sugar supply chain has witnessed sudden and far-reaching disruption, resulting in a test of their resilience and ingenuity. By and large, this test has been passed – but what has the effect been on sugar production,  prices and supply? We analyse on a region-by-region basis below.

Six months on, what is the current market position?

Following a high of 15.9 c/lb just before the coronavirus pandemic in February, world market prices now sit at 13 c/lb. This is below the cost of production for most producers. To encourage exporters to sell their sugar on the market, this price will have to rise once Brazil’s cane harvest is over in November. Brazil’s ample output, however, is continuing to put pressure on the global sugar price market.

Attention has therefore shifted towards northern hemisphere harvests, in particular Europe, where poor beet yields are expected. The COVID-19 pandemic, and the continuing threat of lockdowns, may result in a lack of workforce for the Indian harvest, so this situation needs to be monitored closely.

Large scale gatherings are also still greatly disrupted by the pandemic, reducing the overall demand for sugar around the world. Global sugar consumption in 2019/20 has reduced to 181.1 mln tonnes, the first contraction since 1980/81. If worldwide sugar production increases, with a slightly subdued demand, the global deficit will reduce from 5.6 mln tonnes in 19/20 to only 1.7 mln tonnes in 20/21. Global sugar production for 20/21 may increase to 187.2 mln tonnes (COVID- dependant) which would be the second highest output after 17/18 when 201.9 mln tonnes was produced globally.

The two largest cane producers, Brazil and India are likely to increase production with world cane sugar production forecast to reach 146.9 mln tonne for 20/21. Europe’s beet producers have experienced reduced output, so global sugar beet production is estimated at 40.3 mln tonnes, down from 41.2 mln tonnes in 19/20, despite the expected increase in China and the US. Overall, therefore, any increase in the cane producing regions is likely to be largely offset by reductions in the beet producing regions.

Crops ravaged by weather and aphids in Europe

The sugar beet harvest has just started in Europe. Challenging growing conditions combined with a particularly intense bout of Virus Yellows has decimated production. As a result, reduced harvests have been predicted for 20/21 in Belgium, France, western Germany, Netherlands, Romania and the UK.

France, the EU’s largest beet producer is expected to lose as much as 70% of its beet crop in the worst affected areas, with a yield reduction of 12%. The French government, therefore, is looking to reverse the ban on neonicotinoids, with a partial lifting already sanctioned in 10 other countries.

Estimates for 20/21 EU beet sugar production are 15.9 mln tonnes, compared to 17.3 mln tonnes in 19/20 and the lowest for 5 years. In 19/20, EU sugar consumption fell to 16.95 mln tonnes from 17.3 mln tonnes the previous year. As a result, it appears as though the COVID-19 pandemic has only slightly reduced the demand for sugar, after the initial hoarding in March.

In the UK, Brexit uncertainty continues to affect the industry. Following the UK’s withdrawal from the European Union, the UK government is proposing an autonomous tariff rate quota for 260,000 tonnes of raw sugar entering the UK tariff free, from 1 January next year for 12 months. Out of quota raw sugar entering the UK is being proposed at GBP 280 per tonne from ‘most favoured nations’ (MFN). The National Farmers Union is therefore continuing to lobby the government to ensure its members are not at a disadvantage to their EU counterparts.

Russia less reliant on imported sugar while Ukraine’s production falls

Russia, the world’s largest sugar beet producer, is expected to reduce sugar production for 20/21 due to an 18.5% reduction in sown area as a result of weak domestic prices. However, over the past decade, it has doubled its sugar beet production to reduce reliance on imported sugar.

As such, Russia has a high stock reserve from five years of oversupply. Current estimates for the 20/21 campaign, which is 32% complete, is 5.3 mln tonnes, well down from last season’s 7.86 mln tonnes. In Ukraine, the beet campaign started in September. Expected beet sugar production will fall 15% to 1.2 mln tonnes in 20/21, due to a continued reduction in area sown. This is down a further 5%, on top of the 20% reduction from 19/20.

Brazil’s cane of a higher standard

For Brazil, better quality cane has resulted in increased sucrose content, enabling a faster crushing pace for the 20/21 cane harvest. Sugar production is up year to date on last year, with the sugar to ethanol mix being up at 46% thanks to a 2 c/lb price advantage over ethanol.

Sugar production is expected to significantly increase to 41.5 mln tonnes in 20/21 from 31.0 mln tonnes in 19/20. The 21/22 crop is forecast to reduce as a result of a second successive year of dry weather, leading to fires in both agricultural fields and forests in the central and southern Brazil, affecting the cane quality. Rains in October would help regenerate the sugar cane for the 21/22 crop.

Droughts continue to plague the Thai sugar industry

Production in Thailand fell to 8.4 mln tonnes in 19/20, compared to 14.9 mln tonnes in 18/19. This sharp drop can be attributed to a significantly reduced area under cultivation, extremely poor yields following a drought and the abolition of government subsidies. The worst drought for four decades prevented planting of cane during the most optimal period.

Fortunately, continued rains since April have improved the situation, so only a slight fall in Thai sugar production is expected in 20/21 at 8.0 mln tonnes. The harvest will start later this year in December to allow the cane more time to grow, which will result in a shorter crushing period.

India on track to deliver export targets

A weak Rupee, government subsidies and lower exports from rival countries have seen Indian sugar exports increase by 50% for the 19/20 export program. This has been extended a further three months to the end of December, enabling 5.7 mln tonnes to be exported, which is close to the 6 mln tonne proposal to which India had already agreed.

Now running for the third consecutive year, the export programme will help the finances of the country’s cane mills, enabling them to pay cane arrears to the farmers. Strong rains in the monsoon season are raising the prospects of the 20/21 harvest, expected to produce 34.5 mln tonnes, up from last season’s 28.3 mln tonnes. With substantial carryover stocks already in place, an exportable surplus of 6.6 mln tonnes is estimated for the 20/21 programme.

India increased its sugar conversion to a record 5% ethanol blend in 18/19, using 800,000 tonnes of cane sugar. This has helped the oversupplied sugar market and gives sugar mills a better return due to fixed government prices. For the 20/21 crop, an estimated 1.5 mln tonnes of sugar will be converted to ethanol.

Production increases expected throughout Africa

African sugar production is now levelling out, with an expected 12.5 mln tonnes of sugar produced for the 19/20 season. South Africa is likely to only marginally increase its cane sugar production output for 19/20 to 2.4 mln tonnes, which is largely due to improved yields.

Eswatini, formerly known as Swaziland, will increase cane sugar production by 50,000 tonnes to 740,000 for 19/20, thanks to the country now having the entire cane area irrigated. Egypt will also see a slight increase in sugar production from 0.9 mln tonnes in 18/19 to 1.1 mln tonnes in 19/20.

Midpoint in Australian harvest suggests lower sucrose levels

Wet weather delayed progress for the Australian 20/21 harvest, which began in June. The harvest reached full capacity in August and is now halfway complete, with the crush 6.5% down on this time last year and sucrose levels also lower. Sugar cane production estimates for the 20/21 campaign are 4.5 mln tonnes, 60,000 tonnes up on 19/20.

Varied picture in the US, Mexico and Canada

On 1 July the United States-Mexico-Canada Agreement (USMCA) was signed, replacing the decades old NAFTA agreement. As a result, Canada can now supply the US with up to 20% of the US refined sugar quota.

Canadian beet growers have started the 20/21 campaign earlier than in previous seasons. Farmers are keen to avoid a repeat of last year, when early snow resulted in 45% of beets being left in the ground. In the US similar conditions prevail. After a 10-year low beet production last year, largely due to frozen beets, US beet farmers have also started their 20/21 beet campaign early, with indications of a record crop.

Sugar cane production in the south also looks optimistic, following earlier damage from hurricane Hannah. The cane harvest in Louisiana started in September, with Florida expected to start crushing later this month.

Early estimates for the US sugar production is an increase to 9.2 mln tonnes from the 7.5 mln tonnes produced in 19/20. Domestic consumption in 19/20 was higher than the previous year, despite the COVID-19 pandemic. Imports from Mexico could also reduce due to higher US production estimates.

Mexico stopped crushing sugar cane in July, with production dropping to 5.4 mln tonnes for 19/20 season, compared with 6.6 mln tonnes in 18/19. A delayed start to the harvest due to rain saw a drop in cane yield to the lowest since 1975/76, which gave a poor sucrose extraction rate. Estimates for 20/21 will see sugar production at 6 mln tonnes. Exports to the US for 20/21 will decrease to 800,000 tonnes, compared to 1.3 mln tonnes exported in 19/20, again, mostly due to increased sugar production in the US.

Increases across the board in China

Sugar beet production in China continues to increase, with the 19/20 crop at 1.5 mln tonnes, helped by falling corn prices as a result of government support. Improved beet agronomy, mechanisation and modernised manufacturing facilities are also helping to ramp up production.

For the 20/21 campaign, sugar produced from beet is seen increasing to 1.6 mln tonnes, with total sugar production increasing to 11.6 mln tonnes compared to 9.8 mln tonnes in 19/20.

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