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COMMODITIES ARE HAVING A TOUGH TIME AND SUGAR IS


NO EXCEPTION Commodities are struggling to bring a decent return to producers and Sugar is no exception! Especially in the short term, despite the expected deficit for 2019/20 being estimated at 4 mln m/t R.V. for April19/March20 and 6,5 mln m/t R.V. for Oct 19/Aug 20.


The main cause of the deficit is mostly due to expected lower production in Brazil, Thailand and India. In total we expect a drop of 6 mln m/t in production and an increase of 2 mln m/t in consumption.


Over the past 2 years, a stock build-up has been seen due to strong production and the main increase was experienced in 2017/18. Lower Sugar prices have also been seen over the past two years which in turn has led to lower production, especially in Brazil.


Commodity prices tend to influence farmers planting decisions. As cane is a long term crop, short term price dips are less relevant. Sugar prices have been low for over two years and we should start seeing the impact of this in the coming crops, not necessarily by choosing other crops but via less inputs/husbandry.


We currently see a series of financial difficulties across the producing world, so one would expect a lasting effect in the medium-term. Brazil is having the worst crisis amongst sugar millers with many cases of Chapter 11 and some of Bankruptcy. Some of the Mills are being taken over but most remain in ‘trouble’.


The short-term is still being dictated by higher stocks in India, which is due to a higher production rate than domestic needs. The monsoon wasn’t great to start with and the total acreage is expected to be down, so at this stage the coming crop would be under 29 mln m/t, but still higher than the 26 mln m/t consumed locally. With carry out stocks estimated at 11 mln m/t for the end of Oct 2019, the pressure will persist.


The domestic market in India is trading around US$ 460 per m/t with the World Market around US$ 320, and exports will not be possible unless Millers get some ‘help’. Will they get it again? The market is working with the prospect that as much as 5 to 7 mln m/t may be ‘encouraged’ to be exported. In September 2017 the Indian Government incentivised Millers to export 5 mln m/t under a pro rate export quota. After 11 months less than 4 mln m/t were exported. Will they manage to export more for the next 12 months?


While prices stay low, and in the case of Brazil, below the ethanol parity, Brazilian Millers remain focused on Ethanol production, thus leading into a sugar production lower than last year, unless we have a sustainable price improvement. Given the ‘depressed’ Brazilian real the rally would not need to be that strong, perhaps 14/15 cts would be fine! As we stand, the sugar mix in Brazil will be under 35% and the total sugar production under 26 mln m/t.


Over the last 4 months, Thailand has been suffering with a lower rainfall and although there are still 4 months to go until the start of the harvest, the coming crop will likely be lower and perhaps down to 125 mln m/t of cane, down from 131 mln m/t for the last crop.


22 | ADMISI - The Ghost In The Machine | July/August 2019


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