A PERFECT STORM
Generally, January is a bit of a miserable month. The party days of Christmas and New Year, not to mention resolutions, are just hazy memories, with the weather often dank and cold. For sugar producers, traders and brokers, the start of 2018 looks particularly depressing with prices and sentiment hitting new lows.
In January last year, sugar prices were buoyant, trading well above 20 cents. Global production was not expected to cover consumption for a second season running. The funds were very heavily long and there was chatter that India would have to import large quantities of sugar to satisfy internal consumption. While some analysts had started to talk about surplus production in 2017/18, many were still concerned a weather issue could develop in Brazil or across the main cane regions across Asia. How wrong they were.
Fast forward one year and prices have collapsed nearly 25%. Sugar was the worst performing major agri- commodity during 2017. The funds are now heavily short and some analysts are now talking of +10 million tonne surplus for the current season.
A “perfect storm” is an expression that describes an event where a rare combination of circumstances will aggravate a situation drastically. The sugar industry has been hit badly over the past 12 months. On the production side, there has been an unstinting period where the weather has been ideal for the growing of cane and beet seemingly across the world. Conversely, consumption has been hit by concerns over health issues associated with eating too much sugar.
As is often the case, the biggest producers have seen the largest increase in sugar production. Number one producer Brazil, has seen sugar production increase from below 30 million tonnes in 2009/10, to nearly 36 million tonnes in the current season, which will be a record. Every season there are always several scare stories that the Centre South cane crop will be impacted by drought, cold or wet conditions. Generally, the impact is limited, emphasising the old sugar adage that cane is just a weed and will grow whatever Mother Nature throws at it. This record sugar production is more remarkable because it has to compete with ethanol.
India is an anomaly as it can swing significantly from being a large importer of sugar to an exporter in the space of less than two seasons. In 2016/17, India’s sugar production dropped to barely 21 million tonnes in a poor monsoon for the second season running. While imports were minimal due to large carry-over stocks, production was well below the 25 million tonnes consumption figure. However, production has swiftly bounced back with many now expecting around 27.5 million tonne production in the current season. Therefore, it is highly likely India will become an exporter later this year.
In Thailand, the picture is very similar to India. Production dropped in 2016/17 because of a poor monsoon but looks set to bounce back during the current season, to hit a near record of over 12 million tonnes.
Probably the biggest increase in production has been seen across Europe. Liberated from the tight EU production and export regulations at the beginning of October last year, farmers have increased their planted area and then enjoyed near ideal growing conditions. This has resulted in a near record beet crop and sugar production of probably just above 20.5 million tonnes. With consumption at around 18.5 million tonnes, most of the surplus will be available for export.
In many other countries, sugar production has increased year on year. Russia has seen record sugar production, as has Pakistan. Virtually no country has suffered from a significant drop in output. It would seem the only significant producer to see a drop in production has been Australia. Sugar production has fallen there by about 5% to 4.8 million tonnes, due to crop damage caused by cyclone Debbie.
All this extra production has meant that after two seasons of deficits, the current season has seen a return to a large surplus. Unfortunately, the bad news on production does not stop; many analysts believe next season (2018/19) will also see another sizable surplus.
8 | ADMISI - The Ghost In The Machine | November/December 2017
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