10
Dec 2015
Sugar prices rising influenced by El Niño world weather disruption
The El Niño phenomenon, which is linked to warmer-than-usual Pacific water temperatures disrupts global weather patterns resulting in extreme rainfall or drought conditions.
Market Position
Sugar prices seem to have finally turned a corner, although a couple of months later than we
predicted, with tighter stocks indicating a global deficit in the year ahead. However, the Brazilian
mills still have the capacity to increase sugar production and clear any global deficit. Also, China
and India both are able to determine prices at any moment! The deficit in global production and
a tightening of stocks will provide the support for the rising of prices. The weather has largely
played a part with El Niño weakening the Indian monsoon, disrupting the harvest in Brazil with
rains, delaying the harvest with rains in Central America and creating droughts in Australia and
South Africa.
Europe
The 2015/16 beet harvest is close to 80% complete in the EU 28 states. Production in northern
European beet factories started in September. Yields have been lower than last season, but
mainly in line with 5 year averages. Some countries have fallen below average, which will result
in a shorter campaign. Dry, hot weather across continental Europe in the summer, delayed the
sucrose development, but the crop recovered in the autumn months. In Spain the campaign
ended in October, with average yields, but in Poland they have experienced very low yields due
to a drought in the summer. Favourable weather has helped the German beet campaign with
yields up on last season, with estimates at 3.2 mln tonnes of sugar to be produced, compared to
4 mln tonnes last year. In Holland the harvest has been significantly delayed due to heavy rains,
resulting in heavy soils. Overall production of beet sugar will exceed the 13.5 mln tonne
production quota, current estimate is for 15.1 mln tonnes of sugar to be produced in the EU 28,
down 22% on 2014/15 record crop. In Russia as a result of a 9% increase in planted area with
improved sucrose yields, early estimates are for 5 mln tonnes of sugar to be produced,
compared to 4.4 mln tonnes in 2014/15. This increase in sugar production coupled with a
weaker rouble will result in lower imports of raw sugar which in were 400,000 tonnes last year.
Brazil
Rainfall has dominated the Brazilian harvest which started as long ago as April. September was
extremely wet and November was 65% wetter than normal, with more rainfall forecast for the
remaining weeks of December, resulting in slowing the crushing pace and reducing the amount
of total recoverable sugars. Mills suffering financially have preferred to divert from sugar to
ethanol, due to pressure from industry encouraging mills to boost the ethanol anhydrous stocks
to the government minimum levels. The price for ethanol is 13.7 c/lb which is only a cent lower
than sugar. Current estimates for this year’s sugar production will be below 31 mln tonnes, with
the harvest ending in early January. For 2016, unless the market price for sugar increases, the
mills will prefer to hold stock rather than export.
Thailand
The rains finally arrived in September to save the 2015/16 crop, but the rainfall is still -18%
below the five year average, dry weather at the end of November has allowed some mills to
commence crushing the 2015/16 cane, which will be in full swing towards the end of December
as the weather looks favourable for harvesting. Outlook for the 2015/16 crop is around 105 mln
tonnes of cane or 11 million tonnes of sugar, the same as in 2014/15. There is still a substantial
amount of raw sugar held in stock, yet to be exported.
India
The monsoon rains, or lack of them have been -47% below average with reservoir levels below
where they should be for this time of year. In Maharashtra this has heavily impacted on sugar
production with an early finish to the harvest. 2015/16 yields is estimated to be down -14% on
last year with 27 mln tonnes of sugar produced looking like an optimistic figure. There is now
real concerns over cane planting for the 2016/17 crop, which is estimated to be smaller. This
could affect raw sugar exports, current stocks are high, but this surplus sugar might be needed
to support domestic prices. Also world market price levels will not encourage Indian millers to
export until they reach around 16 c/lb. The Government export quota for 15/16 is 3.2 million
tonnes. In central India harvesting continues at a good pace with production significantly up on
last year.
Australia
The 2015/16 cane crush is nearing completion with estimates at 4.7-4.9 mln tonnes of sugar to
be produced compared to 4.4 mln tonnes in 14/15. Dry conditions with half the rainfall average
affected the crop, but allowed continuous crushing without breaking for maintenance. Late rains
have disrupted the tail end of the harvest with the Queensland crop affect by yellow canopy
syndrome.
USA/Mexico
The need to import Mexican sugar into the US has been reduced due to an excellent beet
harvest. The Mexican cane harvest has started slowly with yields so far below last year due to
continued dry weather. The late start may result in disrupted weather patterns towards the tail
of the campaign. Total sugar production is estimated to be 6.0 mln tonnes.
China
China is holding a huge amount of strategic stock, so if domestic and global sugar prices
increase, these stocks could be used to supplement imports, which will be needed as a result of
China’s smaller crop -26% in 2014/15 to help balance the deficit.