CAN YOU HAVE THE CAKE AND EAT IT?
Since September, the sugar market has improved from very low and, most likely, unsustainable levels. We are currently experiencing a series of crop downgrades which are tilting the Sugar World close to a deficit in April/ March 2018/19, the impact of which will likely be felt further down the road i.e. in October/September 2018/19.
We argue, like many other analysts, that sugar prices have reached a point when no income, if any, is good enough to keep crops properly looked after. Input costs are rising, with a stronger dollar against emerging market currencies, as well as the cost of energy and labour.
In the past 6 months, reduced rainfall has been seen across many important producing nations, with prolonged dry spells in Southern Brazil, Argentina, Northern Europe and parts of the Commonwealth of Independent States, as well as reduced rainfall in India, Pakistan and Australia. Although reduced rainfall has improved the sugar content in some crops, the loss of crop weight was far greater, especially in Europe and Russia where beet is losing 10% to 15% in weight and the acreage was somewhat lower.
Between April 2018 – March 2019, the sugar world lost in excess of 14,5 mln m/t and this is excluding what India may end up having. The main losses were seen in Brazil where the crop may end up sub 26 mln m/t. Europe is likely to produce 2,2 mln m/t less, followed by Russia dropping 600k m/t, Pakistan 700k m/t, and Thailand around 600/800k m/t. As many crops haven’t ended or started, crop estimates will fluctuate but will end lower.
India has been at the epicentre of the sugar world for a long time and is emerging as a far more prominent member of the uncertainties to come. Last year, the Indian crop was expected to improve to 26 mln m/t from a drop to 20 mln in 2016/17. Well, we know what happened; the acreage was greater than reported, with plenty of new cane fields and the crop ended at 32 mln m/t. We’ve been hearing the coming Indian crop would be 35/36 mln m/t and we’ve contested those estimates already back in June at the Thai Sugar Conference,(highly recommended). Indian farmers are not getting paid so there is no incentive to increase acreage and therefore the average age of the cane on the fields is older. The monsoon which started in late June was lower than normal and the post monsoon was also lower than normal and therefore many southern cane areas suffered with reduced rainfall, on top of older cane.
We are now hearing the 2018/19 Indian crop (for which harvesting will commence in November) to be around 28,5/31,5 mln m/t. The crop is likely to be higher than domestic needs and therefore sugar stocks will rise again. The Indian Government conceded to the industry calls, and in late September implemented a 5 mln m/t subsidy plan which could be as high as US$ 145 per m/t. When the domestic market is trading at US$ 440 there is plenty they can discount to export. So, India is not that bearish but can put a ceiling on the market.
28 | ADMISI - The Ghost In The Machine | November/December 2018
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