Global sugar market report 2021/22

It has been over eight months since the last Ragus global sugar market report. In that time, we have seen the world start to recover from the COVID pandemic and, subsequently, global sugar consumption begin to increase. But that is only one part of the story. Below, we examine all things tonnage, price and import/export, explaining the key factors that impact the market landscape.   

Stimulus provided by central banks over the last 18 months has allowed soft commodities to rise in value, with a super-cycle resulting in an extended period for commodity prices to trend upwards. However, the weak dollar coupled with tightness in supply chains is prompting fears of inflation.

Meanwhile, the La Nina weather pattern continues to disrupt crops, increasing uncertainty going forward, and container and dry bulk freight rates are at their highest since 2008. Add to this China’s sudden return to trade as well as a shortage of available containers and high oil prices, and the exporting of sugar is rapidly becoming an extremely expensive process.

On the other side of the spectrum, vaccine programme progress and consumer demand are contributing towards the recovery of the global economy, despite the second wave of COVID infections slowing Asian markets. However, it is important to note that pre-COVID demand will not be seen until 2023 at the earliest. Indeed, world market prices have risen – as predicted in our last report back in October – and now hover around 17 c/lb compared with 13 c/lb in October 2020.

And what about global sugar production? Well, northern hemisphere cane producing countries are at the tail end of their harvests while countries in the southern hemisphere are only just starting cane crushing. But with beet planting well established in the northern hemisphere, we can now predict global production for 2021/22 at 189 mln tonnes, marking a potential increase of 4.7 mln tonnes. This figure compares favourably with the highest ever global output produced on record, which was 201.9 mln tonnes in 2017/18.

Brazil’s sugar production is set to decline due to continued dry weather, but potential increases from India and Thailand could offset this decline. Global beet sugar production for 21/22 is estimated to rise to 40.3 mln tonnes, compared to 38.1 mln tonnes in 20/21, with the EU and Russia the sources of the predicted increases.

At present, then, the worldwide sugar global deficit will reduce from 4.3 mln tonnes in 20/21 to a potential surplus of 0.5 mln tonnes in 21/22. Depending on the COVID pandemic, global sugar consumption could rise to 185.0 mln tonnes for 2021.

Output increases in The Netherlands and the Czech Republic helped the EU’s 27 member states and the United Kingdom’s (UK) sugar production reach 15.5 mln tonnes in 2020/21, compared to 17.3 mln tonnes in 19/20. However, stocks remain low at 1.3 mln tonnes.

In the UK, beet sugar production for 20/21 was only 0.9 mln tonnes compared to 1.19 mln tonnes in 19/20, due to wet weather in the sowing season followed by Virus Yellows on the beets.

European beet planting for the 21/22 crop occurred earlier this year, reducing the risk of aphid disease, but the beets were subsequently damaged by frosts. France and Germany suffered the most, with Germany losing 10% of its plantings. Both countries consequently re-sowed affected areas.

A dry April, particularly in the UK, followed by rainfall and sunny periods has helped the beets recover considerably, suggesting a slightly better than average yield for the campaign later in the year despite lower acreage. However, three years of below-average yields and the reduced use of neonicotinoids, coupled with increased rapeseed and wheat prices, has discouraged EU/UK farmers to grow sugar beet. The EU has, therefore, exported 850,000 tonnes of beet sugar and imported 1.6 mln tonnes of mainly cane sugar. At 8.4 mln tonnes, the UK and EU’s stocks are now the lowest since 2017.

The UK and Australia have reached a free trade agreement that will see a duty-free quota of 80,000 tonnes of Australian cane sugar enter the UK in 2021. This amount will increase by 20,000 tonnes every year for an eight-year period, after which there will be no restrictive tariffs. Consequently, the National Farmers’ Union (NFU) has said that British beet growers will not be able to compete with Australian cane sugar because Australian growers are allowed to use plant protection products that are banned for use in the UK.

Weak domestic prices last year saw a reduced sown area for beet and, therefore, 2020/21 sugar production reduced to 5.2 mln tonnes compared with 7.86 mln tonnes in 19/20. Russia continues to export its beet sugar to reduce stocks and increase prices which should result in an increased acreage for next season as farmers have been encouraged to sow more beet. This was completed in June, with a 9% increase in acreage. Favourable weather has since helped the beet development due to much better soil moisture and no losses from late frosts or pest damage.

Supply in Ukraine remains tight after the 20/21 campaign produced only 1.1 mln tonnes of sugar, a result of poor yields and sucrose content. To put this into perspective, the sugar produced was less than the country’s consumption. Cold and wet weather delayed beet sowing, but beet acreage is up 3% for the coming season.

Nearly three months of the 2021/22 harvest have now been completed and the pace is picking up after a slow start. Sugar production is currently 12% behind this time last year with production expected to fall by 1.9 mln tonnes, from 43.3 mln tonnes in 20/21 to 41.4 mln tonnes this year.

The start of the harvest was much delayed due to a very dry summer, the worst dry spell in 91 years, resulting in both sugar and ethanol production being down. Cane quality is improving, though, due to an increase in soil moisture in the main cane producing regions. This should offset the lower cane availability.

The ratio of sugar to ethanol is currently in favour of the latter. However, further pandemic restrictions would lead to a reduction in Brazil’s fuel consumption, as experienced last year, which would alleviate any ethanol supply shortages. High sugar prices, combined with the weaker Real, are encouraging Brazilian producers to export onto the world market.

The late start to the 2020/21 harvest began in December to allow Thai cane more time to grow, with little carryover of the previous crop. Dry weather from the start of the campaign to March helped increase the sucrose yield. Final sugar output for 20/21 was 7.7 mln tonnes, compared to 8.5 mln tonnes in 19/20 and 14.9 mln tonnes in 18/19.

Rainfall in May helped the 21/22 crop development, though the amount still fell below the five-year average. The cane price is currently more favourable than alternative crops such as cassava, but only 20% of cane is allowed to be burned before harvested compared to 50% in 19/20. This target is to reduce the nation’s air pollution, but it will increase growers’ costs for harvesting cane in a green state as, ultimately, green cane has a lower sugar yield than burnt cane.

Most of India’s 6 mln tonne export programme has been contracted, though the low availability of containers has seen less Indian white sugar on the world market. Nevertheless, it is anticipated that India will export 7 mln tonnes in 2020/21.

The end of the 20/21 harvest was better than expected, producing 30.8 mln tonnes of sugar despite earlier concerns of red rot disease and waterlogging. The mills also enjoyed strong cane yields at the tail end of the harvest, but increased water content reduced sucrose yields. This, coupled with an ever-increasing focus on ethanol, saw sugar production lower than last year’s initial estimates but still up on 19/20’s production of 28.3 mln tonnes.

Looking ahead to the 21/22 crop, reservoirs are full of water to irrigate the cane fields, with estimates for sugar production increasing to 35.9 mln tonnes – a figure that also considers an increased 2 mln tonnes assigned for ethanol production.

However, India is now combating a second wave of the COVID pandemic. Domestic sugar sales have been slow, with the closure of hotels and restaurants meaning the consumption of confectionery and beverages have also been hit hard. As a result, domestic sugar consumption is down 3% at 25.3 mln tonnes, which has led to substantial stock availability. High global sugar prices will see more Indian sugar available on the world market.

African sugar production for 2021/22 is expected to reach 12.9 mln tonnes, compared with 9.6 mln tonnes in 20/21. In South Africa, the introduction of improved cane varieties has resulted in a higher cane crop and increased sucrose content. This means sugar production for 21/22 is expected to reach 2.3 mln tonnes, compared with 2.0 mln tonnes in 20/21. Improved irrigation across the Eswatini/Swaziland growing region will see a further increase in sugar production for 21/22, estimated at 750,000 tonnes.

The world’s largest sugar producing factory has just started at a cost of $1 billion in Egypt, which is a deficit market. The proprietor, Canal Sugar, aims to produce 1 mln tonnes of sugar in 2022. Egypt produced 1.8 mln tonnes of beet sugar and 1 mln tonnes of cane sugar in 20/21 but consumes 3.3 mln tonnes annually. The beet campaign takes place from April until June while the cane harvest occurs from December until June.

The Australian crop is at the beginning of the crushing season, which will carry on until early December. Positive rainfall in the growing months of November through April promoted good cane growth and June’s weather has also been favourable for the start of the harvest. However, with low cane acreage and two major mills now in closure, sugar production for 2021/22 is expected to be similar to the 4.4 mln tonnes produced in 20/21.

Australian produced sugar is struggling to compete with rival crops and the unrelenting urbanisation of former cane fields. Bundaberg, for example, closed one of its two mills after the 2020 harvest because they were running at half capacity.

Cane sugar production for 2020/21, which started last September, reached 3.8 mln tonnes. Weather over the summer months will now determine the beet and cane development before the 21/22 harvest, but it is expected to be another bumper crop, despite cold weather earlier in the year in Texas and Louisiana.

US sugar production is estimated to rise slightly to 8.4 mln tonnes, with high beet production offsetting lower cane yields. US stocks remain comfortable, so Mexican imports are expected to be around 875,000 tonnes.

The 20/21 Mexican cane harvest will end this month. An increase in sugar production will see 5.8 mln tonnes produced, compared with 5.4 mln tonnes in 19/20, as a result of higher cane yield and sucrose content. Precipitated by the pandemic, weak domestic sales will see increased export availability of around 1.5 mln tonnes. Sustained dry weather is a concern for the 21/22 cane development.

China’s sugar cane harvest has all but ended this season with 9.1 mln tonnes of sugar produced in 2020/21. At the end of February, the beet sugar campaign produced 1.5 mln tonnes of sugar, marking a new beet record, with total sugar production for 20/21 reaching 10.6 mln tonnes. This was fractionally up on 19/20, though domestic sales are down.

Increased mechanisation has contributed towards a doubling of beet production over the past six years. This may come to a halt in 21/22, though, as farmers are keen to switch to growing corn, which is currently giving farmers an income more than twice that of beet.

The cane sector is suffering from a lack of labour and mechanisation as well as competition from other crops such as citrus fruits. The government, however, is offering financial incentives to promote the planting of cane. As a result, China is due to import an extra million tonnes in 20/21, rising to 5.3 mln tonnes.

 
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