SO, WHAT ABOUT SUPPLY AND
STOCKS AT ORIGINS? Brazil just finished their 2020/21 cane harvest and due to stronger Sugar prices vs. Ethanol (market conditions and weaker Real) and a weaker ethanol demand, Sugar production was strong, reaching 38,2 mln m/t for in the Centre-South and 2,9 mln m/t in the North/Northeast. Despite a strong harvest, demand for Brazilian sugars were strong also, with a stronger World Demand (normal needs plus some re-stocking) absorbing the extra production.
Brazil managed to export 30,2 mln m/t during April/Feb 20/21 an increase of 12,667k m/t. That was great. Based on estimated domestic demand, exports and “imports” and reported production, we estimate Sugar Stocks close to 5,3 mln m/t in the CS and less than 400k m/t in the NE, for end of February 2021. Stocks overall seem to be about 400k m/t lower YoY and over 50% were Raw Sugars.
On the Ethanol front, Brazil domestic demand remains weaker overall vs. last year, by 3,3 bln litters during April20/ Feb21 vs. same period the year before. Corn Ethanol production was 874 mln litters higher YoY at 2,295 mln litters. On the other hand, giving to the stronger sugar mix, Ethanol production in the CS was 2,8 bln litters and the NE 202 mln litters lower. According to the Braz Gov, Ethanol stocks were 4,2 bln litters by end of Feb, about 300 mln litters higher YoY.
India is also having a larger and fast cane harvest, thus far. Crop estimates range from 30,2 to at 31,5 mln m/t vs 27 mln m/t last year. India started the crop year with 3,2 mln m/t less in stock, estimated at 9,3 mln m/t. Due to a larger crop and lower domestic consumption, despite strong exports, estimated stocks for end of Feb are 22,4 mln m/t, about 1,1 mln m/t higher YoY.
ETHANOL PRODUCTION IN THE CS WAS 2,8 BLN LITTERS AND THE NE 202 MLN LITTERS LOWER.
Thailand is about to end their cane harvest, estimated at 67 mln m/t down from 74 mln m/t last year. A lower crop in 2019/20 and strong exports allowed for Thailand to reduce stocks and they started this crop year with about 1,2 mln m/t, about 2,8 mln m/t lower YoY. Given the lower cane crop and lower carry-in stocks, Thailand is expected to have 2,5/2,7 mln less exportable sugars in 2021.
The CIS region which became a significant exporter in 2020, due to larger crops, especially Russia, is unlikely to carry on with their export flow. Russia had a large crop in 2019/20, close to 7,9 mln m/t but dropped to less than 5,2 mln m/t in 2020/21. Ukraine and Belarus also didn’t increase production and the region sugar stocks will end up down to the bone! We estimate the CIS which exported 1,8 mln m/t in 2020 may drop to less than 600k m/t and most of the drop in the first half of 2021.
Australia is heading to their new crop but is not expected to grow from last year, producing close to 4,2 mln m/t. The EU also had a tough time with lower acreage, poor Agri yields (weather) and some areas were affected by the yellow virus, especially France and the UK. The EU dropped exports to less than 900k m/t in 2020 (1,4 mln in 2019) and are unlikely to rise in 2021.
The US and Mexico are still on target for larger crops and therefore the US will import less and Mexico will export more, perhaps a total nett flow of 1 mln m/t.
OVERALL SUGAR S&D Our revised Sugar S&D shows a 3,2 mln m/t surplus for April/March 2020/21 and most crops are in. Our estimate for Oct/Sept 2020/21 shows about 800k m/t surplus with some downside, depending on some crops will end i.e., India and how others will start i.e., Brazil, Australia, South Africa etc…
Looking forward, all going well our S&D for April/March 2021/22 shows a 4 mln m/t surplus but we have plenty time for things not to go to well i.e., weather!
Sugar demand has fluctuated with the lockdowns and downturn on economic activity and there is a greater difference on estimates, depending on analysts. We are taking a more conservative view and still see 2021 as a challenging year, in terms of supply but also demand.
Domestic markets in many nations, especially importers, are stronger (higher prices), for one reason or another but mostly due to reduced stocks and logistics constraints. We have also seen stronger markets are origins like Brazil, EU, Russia, Pakistan, India etc…. as strong demand/lower stocks pushed prices upwards.
Importers are having to deal with higher futures and freight rates (higher working capital), greater volatility and an inverse market. We suspect demand will be kept to a minimum as importers hope for better prices down the line. The inverse market will encourage producers to speed up their sales and therefore some pressure on cash premiums may persist.
INVESTMENT FLOW Investors in Sugar, in the form of Funds, Specs and Index Funds, started covering their nett short of 332k lots on the 8th of June 20 and by the 2nd of March 21 they were 349k lots long. These 681k lots or 34,5 mln m/t (close to 60% of the World Sugar Trade) pushed prices from low 10cts to 17,5 cts.
Most of the selling came from producers and now they are well priced into 2021. We estimate that at least 70% of the World Trade for 2021 has already been priced by consumers. We also believe consumers are playing safe and close to home and are 22 mln m/t behind pricing in 2021 vs last year.
Sugar will carry on with its usual challenges and will also be influenced by the current Commodity Boom and most other Commodities have similar challenges.
Alberto Peixoto E:
albertopeixoto@apcommodities.london T: +44(0) 7570 714 981
27 | ADMISI - The Ghost In The Machine | Q1 Edition 2021
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