Global sugar market report 2020
Recovering prices and harvests starting in earnest. The new decade in sugar is off to a fascinating start.
Global sugar market position
Global sugar prices are still trying to recover from the 10 year low in 2018. Prices are currently at 14 c/lb compared to a high of 15 c/lb this time last year. They are therefore slowly rising but will remain weak for the remainder of this year and still way short of the level required for mills to turn a profit. As such, mills will be looking to save costs rather than invest in new plant.
World production is estimated to fall to around 175.1 mln tonnes, significantly below estimates from 6 months ago and in contrast to the 184.9 mln tonnes of sugar produced in 2018/19. The global sugar deficit forecast for 2019/20 is set to rise to a massive 10.9 mln tonnes, compared to just 7.8 mln tonnes two years ago. Global sugar consumption is estimated to rise by only 0.9% to 185.6 mln tonnes, in part due to ongoing reformulation of beverages, particularly in sugar producing countries.
However, consumption continues to be growing more than capacity, meaning the sugar deficit could lead to significant problems in the short term. The largest decrease in sugar production will come from Asia, especially in India and Thailand where production is estimated to fall by 10.6 mln tonnes. Weather depending, we are expecting to see a small increase in sugar production in South America, largely due to sugar being refined over ethanol in Brazil.
African sugar production is also expected to increase slightly, as is Oceania’s production. Due to adverse weather conditions in the US, Central and North America will see an overall drop in production. European production will be lower in the EU and Ukraine, but these losses will be offset by the bumper beet harvest in Russia.
Heavy rain sets back production forecasts in Europe
Six months ago, we predicted European Union sugar production for the 2019/20 beet crop to be up on the 18.2 mln tonnes produced in a summer drought affected 18/19 season. This expected yield recovery would have offset the 5% drop in cultivated area, but heavy rainfall since September has reduced our expectation for the 19/20 crop to 17.4 mln tonnes of sugar.
The EU beet campaign will finish at the end of February. Exportable sugar from within the European countries is now set to drop to 4.6 mln tonnes from 5.1 mln tonnes last year, with exports to non-EU countries set to fall to 1.3 mln tonnes, compared to 1.6 mln tonnes in 2018/19. With sugar consumption falling within the EU, refiners are looking to consolidate, potentially with further factory closures and therefore do not want to increase their exports onto the world market.
Population count of Aphids has increased across the EU, and 20% of the 2019/20 beets sown were treated with neonicotinoids. Belgium, Czech Republic, Denmark, Finland and Slovakia were worse affected by Aphids and have been granted the use of beet seeds treated with neonicotinoids in 2020/21, despite the EU’s ban on this pesticide to protect bee populations.
There have been tough harvesting conditions all over the world in the past six months.
Russia breaks records but sells at a loss, while Ukraine sees extraction rates rise
Sugar beet harvesting in Russia has seen a 26% rise in beet yield with an increased sugar extraction. This is largely due to an increase in harvested area from the previous year. Optimal weather conditions for growing beet, better agricultural equipment and investment in factories should result in the final amount of beet sugar produced reaching 7.6 mln tonnes, compared to 6.5 mln tonnes in 2018/19.
Exported sugar from Russia in 19/20 may exceed 1.0 mln tonnes, which would be the highest ever, but this sugar is sold at a loss, so Russia’s expansion may be coming to an end. In Ukraine the area under beet reduced by 20%. However, sugar extraction rates have risen by 1.5%. As a result, and with the beet campaign nearly over, estimates for the 19/20 crop are at 1.48 mln tonnes of sugar, compared to 2.0 mln tonnes in 18/19.
Brazilian mills slowly shift away from ethanol, but will it last?
Sugar cane production and harvesting, which started in April 2019, is ending, with production to date slightly up on the 2018/19 crop. However, much still depends on the harvesting conditions in the remaining quarter of the 19/20 campaign. An estimated 590 mln tonnes of sugar cane will be crushed by 263 mills throughout the 2019/20 harvest. The sugar produced is expected to rise above the 26.5 mln tonnes in 18/19 to 26.7 mln tonnes in 19/20.
Ethanol production is estimated to increase by 7.1% to 33.137 bln litres. With sugar prices starting to recover, mills closer to the ports will start to allocate more cane away from ethanol to sugar. However, mills are paid within three days for ethanol, compared to 45 days for sugar, so the sugar price will need to hit 15 c/lb for this to become more widespread.
Sugar exports in 2018/19 fell from 28.2 mln tonnes in 17/18 to 20.1 mln tonnes, and exports for the current season could drop to 18.8 mln tonnes, which would be a 12 year low. If Brazil is to regain its position as the world’s largest sugar supplying nation, it will need to invest heavily in its capacity.
Deregulated subsidies see Thailand’s production tumble
The Thai government has banned the burning of sugar cane fields. As a result, cane arriving at the mills is producing higher sucrose yields. Despite this, the harvest is 20% behind this time last year. Crushing started earlier this year, but a weak monsoon rainfall has resulted in less available cane.
The crop could drop by as much as 21 mln tonnes compared to 2018/19. Much of this is a result of the deregulation no longer allowing government subsidises of the cane growing during times of low world market prices.
Farmers have instead switched to growing cassava. For the 2019/20 crop we estimate a significant drop in sugar production from 14.9 mln tonnes in 18/19 to 12.5 mln tonnes. Sugar exports from Thailand will drop to around 9.0 mln tonnes, from 11.4 mln tonnes exported in 18/19.
India’s 6-month reserves stopping the world price rising
Like Thailand, India will also see a significant drop in sugar production for the 2019/20 season. Key producing areas experienced floods in August which waterlogged fields, affecting cane recovery, reducing sucrose yields and in some cases causing total loss of cane crops. For 2019/20, the cane area being harvested is 33% less than in 18/19. We estimate that 28.3 mln tonnes of sugar will be produced in 19/20, compared to 35.9 mln tonnes produced in 18/19.
While the exportable sugar from the 19/20 crop will be nil, compared to 7.6 mln tonnes last year, Indian still has 6 months of last year’s production in warehouses. This stock is preventing the world market price from significantly increasing. The government has extended export subsidies, approving a 6 mln tonne export program, to help prop up local prices. Like Brazil, India needs to invest heavily in its capacity if it is to remain as one of the top two global suppliers.
Africa remains on the up
African sugar production continued its revival in 2018/19, producing 12.1 mln tonnes. The expectation for the 19/20 campaign is a further rise to 12.8 mln tonnes. Egypt has provided the biggest surprise by increasing sugar beet production alongside improvements to cane yields through fertilisation.
After an increased production in South Africa in 2018/19, this season estimates for sugar production are the same at 2.1 mln tonnes. Swaziland’s record production of 0.8 mln tonnes in 18/19 looks set to continue this year. This is due to the expansion of planted area under cane and the fact that the entire cane area is now irrigated following the disastrous drought of 2016/17.
Early harvesting means Australian crops escape devastating bushfires
The 2019/20 harvest came to an early end in December having commenced in June. Sucrose levels were below the previous campaign due to too much rain in the north and not enough in the south. The amount of sugar forecast to be produced in 19/20 is 4.7 mln tonnes, compared with 4.5 mln tonnes in 18/19. The recent terrible fires have burned some cane fields which fortunately had been harvested, resulting in minimum loss of sugar.
Delayed starts in Mexico and frozen beets in the US
For the second year running the Mexican cane harvest had a delayed start due to rains in October and November. Sugar production, therefore, is significantly down on this time last year, despite an increase in cane area planted. The cane yield is the same as last year, but sucrose extraction is significantly reduced due to drought this season.
Early estimates for sugar production in 2019/20 are 5.9 mln tonnes, compared to 6.6 mln tonnes in 18/19. Mexico is expected to increase exports to the US to around 3.4 mln tonnes, following a significant drop in US sugar production as a result of adverse weather conditions.
We estimate that US sugar production will reduce from 8.3 mln tonnes in 2018/19 to 7.5 mln tonnes in 19/20. Frozen beet fields have severely disrupted harvesting, leaving beet production at a 10 year low. In the south, colder weather is also affecting the cane development in Louisiana. North & Central America produced 23.0 mln tonnes in 2018/19 and is estimated to produce only 21.6 mln tonnes of sugar in 19/20. This will result in exportable sugar onto the world market falling to around 5.6 mln tonnes in 2019/20.
Investment needed for China to grow
With an increased area under cultivation for the 2019/20 beet and cane crop, harvesting began early in China. Frosty conditions potentially reduced sucrose yields from cane, while the beet campaign is soon to end. Total sugar production for 2019/20 is estimated at 11.4 mln tonnes, compared to 11.7 mln tonnes in 18/19. If China is to grow its sugar industry, investment will be needed after very little in recent years. Imports started increasing during the 18/19 season after the government issued import permits last May. As a result, imports will rise by around 1.0 mln tonnes to a total of 4.6 mln tonnes in 2019/20.