SOUR SUGAR
Back in January we described the sugar market as having suffered from being hit by the perfect storm.
Back in January we described the sugar market as having suffered from being hit by the perfect storm. There had been an unstinting period when the weather has been ideal for the growing of cane and beet across the world while health concerns have hit consumption. We ended by saying that, hopefully, the worst of the storm had passed and the sun would soon appear to shine of the sugar market. Unfortunately, the sugar industry has continued to be battered by storms over the past four months. Indeed, it seemed that no day passed without some bearish news being released.
This continuing bleak fundamental picture has seen prices fall another 22% since the highs in early February culminating in prices diving to their lowest level since 2 September 2015. Prices have recovered somewhat from these dismal levels but many believe the worst is yet to be seen.
Back in January only the most bearish of estimates put the global production surplus for 2017/18 at ten million tonnes. Now most analysts see a global surplus of well over 11 million tonnes, with a few considerably higher. The main reason for the increased surplus forecast in production is India and Thailand. Both have hit record production. India is now expected to hit 32 million tonnes while Thailand will hit 14 million tonnes. This is some 4 million and 2 million tonnes more than expected by analysts for India and Thailand back in late January. A huge cane crop combined with excellent sugar content has meant that the harvest continued for longer than normal.
SUGAR PRODUCTION ACROSS THE GLOBE SAW RECORDS HIT IN OTHER SMALLER PRODUCERS INCLUDING RUSSIA, PAKISTAN AND THE USA.
Brazil’s CS region produced just under 36 million tonnes in 2017/18 while the EU harvested a record beet crop last year, producing about 21 million tonnes of sugar after being liberated from its tight production and export regulations last October. Sugar production across the globe saw records hit in other smaller producers including Russia, Pakistan and the USA. All this has combined to produce the largest global surplus ever.
Sadly, this grim position does not look set to significantly improve anytime soon. Another large production surplus is expected next season in 2018/19. Many analysts expect the largest two consecutive year’s surplus in history. Production in India and Thailand is expected to be as big, if not bigger, than in the current season. EU production is likely to be around the same as in the current season. However, Brazilian production is expected to fall substantially in 2018/19 as millers shift the bulk of their cane to the production of ethanol with some expect production to fall to below 30 million tonnes (a drop of around 6 million tonnes). Unfortunately, surplus production in India and Thailand looks likely to more than off-set this expected drop in production. Therefore, by the end of September 2019 it is likely the world could produce over 18 million tonnes more sugar than required over two seasons. This represents about 10% of annual global consumption and will need production to fall substantially in 2019/20 to have any marked impact on prices.
So to use a non-weather analogy, is there any light at the end of the tunnel? Despite it being a long tunnel there is, perhaps, a speck of light. At current prices sugar production is not viable. This is beginning to have a severe impact on producers with mills and processors losing money. This has led to Indian mills owing farmers huge amount of money for their cane and EU processors posting very poor financial results.
18 | ADMISI - The Ghost In The Machine | May/June 2018
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