Sugar Surplus & Lower Prices Dominate Market
The global demand to buy sugar continues to be weak due to a high level of stocks held by importing countries which is resulting in continuing falling domestic prices. The northern hemisphere cane harvest is now complete and the Brazilian Centre/South harvest is ahead of schedule, although sugar exports are down compared to this time last year. Favourable weather conditions across Colombia, EU, India and Pakistan has resulted in a very good prospect for the 2014/15 harvest. The market is telling producers and traders to store, rather than sell at today’s low prices, with stock carry over around 53 mln tonnes after four consecutive seasons of surplus. The estimate for the 2014/15 crop surplus is 2.6 mln tonnes of sugar.
In the UK, Beet farmers are preparing for what could be a record harvest with processing having just begun. Approximately 7.5 mln tonnes of beet will be delivered from 3,600 growers to be processed over the next five months. Increasing number of farmers are achieve record yields in excess of 100 tonnes per hectare compared to the once ambitious target set of 70 tonnes per ha, following the reforms in 2005. Wheat yields in comparison have plateaued for the last 20 years. However the future will be a challenge with a 24% price reduction next year and the abolition of sugar beet quotas in 2017. The UK estimate for sugar produced will be at least 1.3 million tonnes. Throughout Europe the 2013/14 season has experienced falling prices, down 22% over the year as a result of large stocks and higher preferential imports from EPA-EBA origins and Colombia. Production estimates for 2014/15 EU beet campaign is 18.2 million tonnes, an exceptional figure, due to perfect weather conditions.
Crushing which began in April continues to be affected by drought which is limiting the cane development and return on yields, but benefiting a high crushing pace which will result in a short tail end to the harvest, this compares with very wet conditions during the first half of last year’s crop. The estimates for 2014/15 sugar produced is down 8.6% (from 546 mln tonnes of crushed cane) on 2013/14 levels to 32.3 mln tonnes. The diversion of cane to sugar continued to drop to 44.73% due to a significant premium for ethanol sales over sugar for export.
Much needed rainfall over the last few weeks will help yields for the 2014/15 crop, aided by the government’s plan to increase acreage by 10% in the next few years, which will result in at least 11 mln tonnes of sugar being produced. Large crops and insufficient exports over the past three years (down 10% on last year) has resulted in a large build-up of stocks adding to the pressure on millers and traders to clear warehouse before the new harvest in November.
Recent rains after a poor start to the monsoon season in June has improved the prospects for the 2014/15 crop with replenished reservoirs which will help yields later in the harvest and the 2015/16 plantings. Production could reach 25 mln tonnes, whilst the government has announced an increase on import duties from 15% to 25%, with hopes for a prompt start to the crushing season in late October.
Despite Cyclone Ita damaging around 70% of the Queensland crop the harvest has recovered well aided by heavy rains in mid-August, improving soil moisture after a very dry 2014. This will benefit the health of the 2015/16 crop. Sugar produced for 2014/15 is likely to recover to around 4.3 mln tonnes. Exports of 3.0 mln tonnes of 2013/14 are unlikely to be matched after Indonesia cancelled 400,000 tonnes of bulk raws.
The 2014/15 cane sugar output for the US increased by 105,000 tonnes to 3.26 mln tonnes, with beet sugar remaining at 4.31 mln tonnes, despite the freezing temperatures in the Red River Valley which delayed beet planting. The anti-dumping petition against Mexico will result in a preliminary ruling being announced on 24th October; meanwhile the decision has been made to apply import duties to Mexican sugar entering the US. The threat to Mexican sugar being priced at a premium remains high, although the Mexican producers have stated they would not accept less than a 1.0 mln tonne quota into the US. Mexican cane sugar production for the 2013/14 crop totalled 6 mln tonnes, compared to 7.0 mln tonnes in 2012/13.
Against a backdrop of falling domestic prices the government is likely to cancel its sugar stockpiling policy which currently is almost 50% of consumption. Imports of raw sugar are nearly 50% lower than this time last year. Further, the 2014/15 crop planted areas are 4% lower across the cane growing regions in South East China. Although these regions have experienced good cane growing conditions the 2014/15 crop is unlikely to produce the 13 mln tonnes of sugar that was produced in 2013/14.