Ben Eastick Written by Ben Eastick

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.



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.



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.



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.



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.



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




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 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.