Global sugar market report 2019
Droughts, monsoons, and the world’s biggest vote – it’s been quite a few months for the sugar market across the globe.
Global sugar market position
Last year saw extraordinarily good weather for growing sugar crops globally, resulting in record crops and stocks. Global sugar prices, therefore, dropped below 10 c/lb for the first time in ten years. Sugar prices are now starting to recover slightly, currently at 12 c/lb, which is approaching the 15 c/lb we saw in our last report at the end of January, but still nowhere near the level needed to turn a profit.
The top 20 global sugar companies reduced production in 2018/19 and world production is estimated to fall to 187.3 mln tonnes in 2019/20 from 201.2 mln tonnes in 18/19. Low sugar prices have seen profits reduce across the industry, leading to losses and rising debt levels for production mills. A continuing contributing factor to these falling global prices has been India’s domestic support to cane farmers and its subsidies to sugar exports. A further impact of this has been reduced production in Brazil, Thailand and China.
On the other hand, European producers have multi-year agreements with beet farmers, meaning sugar beet production will remain high for 2019/20, keeping prices low and impacting on producer margins. Global sugar production for 18/19 is estimated at 185.7 mln tonnes with global consumption at 184.9 mln tonnes, up from 183.3 mln tonnes in 17/18. The minimal global surplus compares with a surplus of 7.8 mln tonnes in 2017/18.
Beet surpluses and insecticide bans continue to cause issues in Europe
The European sugar sector has suffered an unprecedented change since the abolition of EU sugar quotas in 2017, distorting the market during this transitional period. Germany’s Südzucker saw sugar beet production reduce by 1.2 mln tonnes, Tereos of France suffered from oversupply on the EU market, and AB Sugar of the UK also suffered with profitability, with this blow being somewhat softened by a weak British pound. Nordzucker of Germany and Cristal Union of France both saw beet sugar production fall by 400,000 tonnes each.
These low sugar prices, combined with a continuing ban on the use of neonicotinoid, have seen beet planting across Europe for the 2019/20 crop down by 6%. The ban was introduced to protect the harming of bees from the use of the insecticides found in neonics. However, with no suitable alternative, Austria, Belgium, Croatia, Czech Rep, Denmark, Finland, Hungary, Poland, Romania and Slovakia are exempt from the ban. As well as this, the population count of Aphids is increasing across Europe, particularly in Belgium, Netherlands and the UK.
The reduction in sugar production from the 18/19 crop has seen a reduction in exports and an increase in sugar imports. Predictions for the 2019/20 beet crop are up slightly at 18.6 mln tonnes compared to 18.2 mln tonnes in 18/19, due to an expected yield recovery which was affected by drought last year.
Weather disrupts sugar beet planting in Ukraine and Russia
Having been delayed by a cold, wet spring, sugar beet sowing is almost complete in Russia. Ukraine has experienced heavy rains which may result in lower beet yields and decreased extraction rates, although the total area sown has more than doubled compared to this time last year.
Indications for the 2018/19 harvest is Russia producing 6.5 mln tonnes, down from 7.1 mln tonnes in 17/18 and the Ukraine producing 2.0 mln tonnes of sugar. Factories will continue producing sugar from beet syrup from the 18/19 crop until the end of this month.
Brazilian currency fluctuations could affect world sugar prices
Above average rains helped cane development of the 2019/20 crop. Harvesting began in April and continues at a good pace but is still behind last year. The volatility of the oil market and the Brazilian currency is not favouring an ethanol orientated sugar mix resulting in VHP sugar prices above that of hydrous.
Longer term this could affect the world sugar prices, with the market not needing any additional sugar from Brazil. The reality though is that 101 mills will not operate this year (23%) due to depressed sugar prices, so the likelihood is that the cane will be used for ethanol production at around 63.5% of the share, reducing sugar yet again to 36.5%.
The end of the 2018/19 harvest in Brazil was disrupted by heavy rains, sugar production reaching 26.5 mln tonnes, which was 13.9 mln tonnes less than 17/18 production. Cane used to produce sugar fell to an all-time low with mills unlikely to switch back to producing sugar until prices recover to over 13 c/lb.
Dry weather leads to good cane harvest in Thailand
An early start to the harvest with continued dry weather gave the cane a high sucrose concentration, resulting in good yields. Analysts predicted an early finish to the 2018/19 crop later this month. The tail end to this year’s crop is strong and will be close to the record 17/18 harvest which produced 15 mln tonnes of sugar, meaning exports will hit an all-time high as the country tries to reduce its stocks. For 2019/20, the deregulation no longer allowing government subsidises for cane growing during times of low world market prices is likely to result in less sugar being produced.
No signs of sugar industry subsidies ending as India re-elects PM
Early bullish predictions for the 2018/19 crop had to be altered as the crop evolved due to weather and pests impacting on the cane development, however the crop recovered and now at the tail of the harvest, estimates have increased to 35.9 mln tonnes. A historical high level of stocks (25.5 mln tonnes) is being stored by the Indian mills, so the newly elected government is likely to extend export subsidies into the 2019/20 season in order to clear this glut of sugar and help prop up local prices.
Australia, Brazil and Guatemala are trying to halt India via appealing to the WTO, stating that the government is granting more than the agreed 10% subsidy. With high payment arrears, many farmers are switching to other crops such as soybean and pulses. A poor monsoon, which is already delayed, in the months of June to September from the El Niño effect will also contribute to a reduced 19/20 crop.
Drought recovery boosts Africa’s production levels
Due to several countries’ recovery from severe drought conditions, African cane sugar production is expected to rise to 10.3 mln tonnes in 2018/19 compared to 9.4 mln tonnes in 17/18. However, domestic sugar prices have strengthened in Africa as a result of flooding in Malawi, Mozambique and Zimbabwe after cyclone Idai hit the region in April. Mauritius is expected to produce 325,000 tonnes of sugar from the 2018/19 crop, an increase on earlier predictions but down on the 355,000 tonnes produced in 17/18 and continues the country’s sugar decline from the 600,000 tonnes produced in the early 2000s.The country is looking to increase exports of speciality sugars to 180,000 tonnes by 2023.
In South Africa the government may consider support measures to help restructure the sugar industry. Sugar production reached 2.1 mln tonnes in 18/19, compared with 1.9 mln in 2017/18 after the recovery of the cane yields. In Swaziland good rainfall levels have seen sugar production rise by 14% to a record 800,000 tonnes.
Nordzucker makes move for Australia’s Mackay Sugar
The 2019/20 harvest is starting up and it is predicted that the sugar produced will fall to less than 4.6 mln tonnes as a result of too much rain in the north and not enough in the south. The Australian 18/19 harvest came to an early end in December, dry weather leading to a drop in yields with the country producing 4.7 mln tonnes, the same as in 17/18.
Nordzucker of Germany is looking to purchase 70% of Mackay Sugar, which needs restructuring and funds to invest in its deteriorating mills. The company has not made a profit since 2014 due to falling sugar prices. Farmers back the offer as it would secure their future crop and give them a 30% stake in the company.
Mexico rises while the USA falls
Wet weather delayed the start of the 2018/19 Mexican harvest, but a strong sucrose yield and increased acreage planted saw 6.2 mln tonnes sugar produced in 18/19. More than 700,000 tonnes of sugar have been diverted onto the world market due to the reduction in the US quota, making Mexico one of the biggest exporters in 2018/19.
The US beet crop will be the smallest since 14/15 at 4.4 mln tonnes due to cold weather in the harvest season, resulting in lower extraction rates. The cane crop, however, is expected to reach a record 3.7 mln tonnes. US stock levels are high resulting in the reduced Mexican import quota.
China increases its cultivation area
China has increased its area under cultivation for sugar crops in 2019/2020 by 5,000 hectares compared to the 18/19 season. The sugar purchasing price has remained stable with continued enthusiasm for the crop over lower prices for alternatives. China’s sugar production for 19/20 is estimated to be 10.88 mln tonnes, an increase of 150,000 tonnes over 18/19. Sugar consumption remains unchanged at 15.2 mln tonnes. The need for imported sugar in 2019/20 will be 3.04 mln tonnes, which is an increase of 140,000 tonnes from 18/19.