The EU Beet crop harvest will start soon and is not looking as good as expected due to heat waves and lower rainfall impacting crop development. At this stage the EU planted area is estimated to be 5% lower YoY and the Beet yield may not be 6% better than last year, therefore the total sugar production may not be much higher than 18 mln m/t, a small increase compared to last year and just under the total domestic demand.

Taking a look at the long-term, one would expect that the current deficit, which could be repeated into 2020/21, would be supportive to prices. As producers produce in local currencies and export in US$, the current currency war is not supportive to much better prices, especially while the Brazilian real doesn’t improve. The Brazil Government is willing to go through some social and tax reforms which may lead to a better financial situation. The current weaker Brazilian real is allowing for assets to look very attractive and the trade balance remains positive. The Brazilian real is likely to improve in the medium- term, as the short-term is being affected by the current macro scenario when Brazil’s good story is yet to develop itself.

So, in the short-term, prices will not recover through

consumption which is only growing by less than 1,2%, but perhaps via the expected deficit for the current crop year and possibly the next year also.

As the market expects India to become a large exporter again, sugar prices may not move higher than Ethanol parity (around UScts/lb 14/15) anytime soon and it is unlikely that Brazilian Millers will switch back to Sugar. Until a stronger Sugar production is seen in Brazil, we will not likely to move back into a surplus situation anytime soon.

In the short-term we can say that Sugar prices seem to be at a low and well below the cost of production for most producers, even in current weak currencies against the US$.

As we say, the solution to low prices are low prices, but these low prices are taking a long time to recover. While producers are willing to let their stocks go at current prices, the market will not get stressed, but once they go, the market will need to encourage production again!

Alberto Peixoto E: T: +44(0) 7570 714 981

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

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