Ben Eastick Written by Ben Eastick

Sugar Stocks To Return To A Surplus in 2017/18

Market Position
Sugar prices traded around 16-17 c/lb during April compared to 19.5-20.5 c/lb last October based on the perception that world supplies will be sufficient in the 2017/18 season. If India imports white sugar before Q4 this year, the world market price will likely increase. If these imports are delayed, Brazilian and EU surplus sugar is likely to enter the world market, reducing world market prices. However, sugar imports into China need to be taken into consideration. Our prediction is that the market will remain bullish as a result of a two season global deficit in 2015/16 and 16/17, with the 2017 season looking tight on both raws and white trading flows. The global deficit for 2016/17 is 5.3 mln tonnes. Global sugar production for 2017/18 is estimated to increase to 190 mln tonnes based on predicted increases in production from the European Union, India and Thailand. This compares with 176.9 mln tonnes produced in 2016/17. The result will be a global sugar surplus of 2.8 mln tonnes for 2017/18, with global
consumption increasing by 2% to 184 mln tonnes. Prices are unlikely to drop due to low stock
levels, but they are also unlikely to increase significantly.

Wet weather in March delayed the sowing of beets in the Benelux, German and Netherland regions, although sowing is now 100% complete. The planted area is expected to increase
around 17% above 2016/17 season, potentially producing 20 mln tonnes (compared to 16.9 mln
tonnes in 2016/17) which would be the highest since 2005/06 and the first crop in five decades not subject to marketing limitations. Increases are expected also in Russia which produced 6.6 mln tonnes in 2016/17 and the Ukraine which produced 2.4 mln tonnes in 16/17. This could result in European production rising to 33.1 mln tonnes in 2017/18, the second highest since 1990/91. Currently, EU stocks have fallen to around 509,000 tonnes, significantly under the 1mln tonnes that resulted in special measures in 2010/11. However, the European Commission has withdrawn a proposal to reclassify some out of quota sugar destined for food and beverage producers prior to the market being quota free on 1 st October, after the sugar industry opposed the proposals. The European sugar industry supported by ACP countries say that there is enough sugar available until the next crop and that an increase on quota sugar prior to the reforms would only erode market prices, discourage preferential imports from ACP countries and stocks would rise excessively. Brazil’s import quota to the EU remains unfulfilled as a result of persistently low EU prises that have fallen below world prices in recent months. In the UK British beet growers have been guaranteed a minimum price of GBP 22 per tonne which could lead to sugar production of 1.4 mln tonnes for 2017/18, up from 1.0 mln tonnes in 2016/17.

Cane crushing began in April. A mixture of wet weather, lower available area and ageing canes
(on average 3.6 years old) with poorer yields has resulted in early estimates for a decrease in
sugar production in 2017/18 at 35.2 mln tonnes. However there is still plenty of time for changes to the Brazilian harvest as a result of weather, sugar yields (as the plantations are in a
satisfactory condition) and the sugar mix over ethanol. The reduction in gasoline prices is
making the production of ethanol over sugar less attractive and sales of hydrous ethanol have
become less competitive due to expired tax support measures. The mills have more funds now
to invest again which has resulted in a replanting effort in recent months. The month of May will see stocks start to build up in the ports. The global deficit for 2017 is relying on Brazil to over perform again, currently the country is not adding much to any global surplus with export
forecasts at 28.28 mln tonnes, down 400,000 tonnes on last year.

Dry weather is helping the 2016/17 cane harvest which began in December and is nearing completion. Sugar yields are up on last year due to ideal weather with plenty of rain during the
growing season. Sucrose extraction is up on last year at 11.08%, from an actual smaller crop.
To date the country has produced 10 mln tonnes of sugar compared to 10.2 mln tonnes in 2015/16. The government is planning on abandoning the current quota system for buffer stocks and also plans to relax domestic prices.

Uttar Pradesh cane crush has now come to an end with a smaller crop. Two years of reduced monsoon rains has reduced planted area in central India, resulting in a smaller yield with sugar
production for 2016/17 below consumption for the first time in seven years at 20.2 mln tonnes.
This is a drop of 4 mln tonnes over 2015/16 crop. The monsoon season forecast is rainfall at
96% of normal levels. The actual amount will impact on the 17/18 and 18/19 sugar production.
2017/18 harvest will commence in six months, production is expected to increase, but existing
stocks may struggle to meet consumption (24 mln tonnes) during the peak demand period of the year. A 500,000 tonne import quota for raw sugar was announced last month. Predicted tight stocks in Q3, will see white sugar imports required. These imports will directly affect the NewYork and London traded prices for sugar.

Southern Africa
Local market prices remain strong as a result of the drought during the last two seasons. The
2017/18 crop should be improved over the 1.5 mln tonnes produced in 2016/17 due to rainfall in

The cane harvest is expected to commence in the next couple of weeks. Cyclone Debbie which hit Australia’s cane growing regions last month may have affected up to a quarter of the cane crop as a result of winds up to 250km/h and heavy rains of up to 250mm, which has caused heavy flooding and damaged to several mills. Early estimates predict that sugar production will be 300,000 tonnes lower for 2017 at 4.8 mln tonnes. Consumption remains stable at 3.7 mln tonnes.

Mexico’s export quota to the US has increased to 1 mln tonnes as a result of reduced sugar
yields and shrinkage of beets stored from the US beet production in 2016/17 and tighter stocks to use ratio. The 2015/16 Mexican sugar production of 6.1 mln tonnes is unlikely to be matched in 2016/17 due to lower yields from the current crop, despite a higher harvested area. US beet production for 2016/17 is estimated at 4.9 mln tonnes, down from 5.1 mln tonnes in 2015/16. US cane sugar production for 2016/17 has also been reduced to 3.8 mln tonnes, due to reduced sucrose recovery by producers in Florida and Texas. US sugar imports have been raised to 375,000 tonnes.

The 2016/17 crushing season is nearing its end. Domestic sugar prices have fallen in recent
months, reducing the likelihood of the government selling strategic stock. Lack of clarity over
import quotas and a possible increase in duty rate has seen a lack of demand for imported raw
sugar, leaving border traders to ship more white sugar through Myanmar. China has been the
world’s largest sugar importer over the last couple of years, with 6.2 mln tonnes coming into the country in 2015/16. The concluded beet production for 2016/17 reached 1.0 mln tonnes up from 839.9,000 tonnes in 2015/16. Cane production is nearing completion and is estimated to
produce 8.2 mln tonnes of sugar, bringing the country’s total sugar output for 2016/17 close to
9.2 mln tonnes, compared to 8.7 mln tonnes in 2015/16. Domestic consumption is around 15.4
mln tonnes leaving a shortfall of 6.2 mln tonnes which will need to be filled with world market
sugar, mainly from Brazil, Thailand, Cuba and Australia.