On the assumption that a severe weather issue does not develop, prices could dip during the second half of the year. By July the Brazilian CS harvest should be in full swing. Early estimates see sugar production the same or greater than in the current season. Indian and Thai sugar production should bounce back as the 2016 Asian monsoon was good. EU sugar production is cited to improve as the EU sugar regime comes to an end in September. Finally, Chinese production is also likely to improve slightly, meaning that imports are unlikely to increase. Therefore, by the end of the third quarter traders will have a reasonably accurate idea of the 2017/18 surplus and prices may fall back to the upper teens.
As with all predictions there has to be a disclaimer. While the expected surplus for next season has grown recently (2.7 million tonnes by Platts in early February) much can happen to change the fundamental picture completely. A wet start to the Brazilian CS harvest, a poor Indian monsoon or a dry summer in Europe would all have a positive impact on prices depending on the severity.
Other factors will impact on prices. The macro is likely to be particularly volatile this year – President Trump’s economic and social policies, European elections and OPEC are all likely to impact on major currencies, especially the US dollar. The Brazilian Real will remain very influential on sugar prices and will certainly dictate the mills’ pricing levels.
As they always do the funds will, undoubtedly, continue to have a huge effect on the sugar market. As we have noted, they hold a large long position but still have ammunition to buy which would see prices jump higher. Conversely, if they decide to liquidate their position for technical or fundamental reasons, prices could overshoot on the downside quite considerably.
Finally, the other side of the supply/demand equation should be mentioned. Sugar consumption is under pressure for several reasons. Due to low corn prices, high-fructose corn syrup/ isoglucose is currently cheaper than sugar, boosting its attractiveness. Heath concerns continue to grow over sugar consumption. Higher taxes on fizzy drinks and possibly other high- sugar processed foods may cut consumption. Therefore, the annual consumption increase may well be well below the long- term 2 percent.
On the basis of what we currently know, the up-side would appear limited with the potential for prices to drop considerably. There is definitely some ‘what if’ premium built into prices at the moment, as is often the case. Whether it is justified remains to be seen. The issues that have yet to be determined will continue to make the futures markets difficult but exciting to trade.
Howard Jenkins E:
howard.jenkins@
admisi.com T: +44(0) 20 7716 8598
23 | ADMISI - The Ghost In The Machine | January/February 2017
HEATH
CONCERNS CONTINUE TO GROW OVER SUGAR CONSUMPTION. HIGHER TAXES ON FIZZY DRINKS AND POSSIBLY OTHER
HIGH- SUGAR PROCESSED FOODS MAY CUT
CONSUMPTION.
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