AS OF THE MIDDLE OF MARCH CRUDE WTI HAD DROPPED OVER 25% FROM THE HIGHS WHICH MAY WELL HAVE PRESIDENT BOLSONARO ON THE PHONE TO PETROBRAS DEMANDING A CUT IN PRICES.
Currently, the 2021/22 season is half completed with most analysts now expecting a small deficit in production compared with demand. The size of the deficit has been recently reduced by most as Indian production looks set to beat pre- harvest estimates by around 10% with total production, perhaps, reaching a record- breaking 34 million tonnes and propelling India back to the top of the world’s largest sugar producer league. This will off-set Thai sugar production which is likely to be slightly less than predicted earlier when the harvest got off to a blistering start. This is all against a back-drop of a substantially reduced Brazil CS production in 2021/22 due to months of drought topped off with a couple of frosty nights last year. Not only has Indian production this season cut the deficit to around one million tonnes but their large stocks have seen six million tonnes of exports plug any supply gaps with more stocks available. This all done with no export subsidies.
The general consensus from analysts prepared to make a long term prediction is a small global surplus is likely in 2022/23 as Brazilian CS production prospects bounced back after months of decent rains replenished soil and cane. Indeed the rains have continued through February and it is still raining in the middle of March. The view is that the cane crop will recover to around 560 million tonnes from just 521 million tonnes in 2021/22. However, predicting the amount of sugar to be produced has been made considerably harder since crude prices have rocketed. The recent increase in Brazilian gasoline and diesel prices by Petrobras has had some analysts cutting up to 2.5 million tonnes off their expected sugar production which could mean the total would be little changed from the 32 million tonnes produced last harvest. Many feel this may be wishful thinking as higher gasoline prices do not guarantee increasing ethanol demand. Of course, this is all based on continuing high crude prices. As of the middle of March
crude WTI had dropped over 25% from the highs which may well have President Bolsonaro on the phone to Petrobras demanding a cut in prices.
As mentioned above, grain prices, and especially wheat and corn, have rocketed higher as the Russian invasion started. Both Russia and the Ukraine are huge wheat producers and Ukraine a large corn producer so any disruption to exports and, more importantly, production, will impact on world prices. There has been some chatter about whether other cash crops will be planted instead of beet across the EU this year. While it may have some impact it should be remembered that firstly, farmers will have missed the opportunity to plant winter wheat which is higher yielding than spring sow wheat. Secondly, beet farmers may also have signed supply contracts with processors. Therefore, any significant change in the EU sugar beet planted area might only be seen in 2023.
Currently, the market appears well supplied with 5 million tonnes of shipped India exports against a global production deficit for the season of rather less. Demand is still lacklustre and consumption appears to be struggling to get back to pre-pandemic levels. Looking further forward the crystal ball is clouded by the Russian/Ukraine conflict. While everyone hopes for a swift end to the situation this would seem unlikely. What impact a protracted war will have on sugar is difficult to foresee but we suspect sugar production out of Brazil will be higher than many expect. If this is the case then the 17.80 cents price predicted for the end of the year in a recent Reuters poll may not be too far from the truth.
Howard Jenkins E:
howard.jenkins@
admisi.com T: +44(0) 20 7716 8598
9 | ADMISI - The Ghost In The Machine | Q1 Edition 2022
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