TALE OF TWO HALVES
Over the past three months sugar has seen some tumultuous times with prices reaching their highest levels since the middle of November 2016.
As to be expected the volatility has increased with the trading range doubling compared with the previous three months. For prices to have reached these exalted levels one would suspect a cane crop failure in a major producer or, at the very least, a potential damaging weather issue developing in Brazil, India or Thailand. However, this is not the case. Indeed the weather across most cane areas has been fairly benign. In Brazil’s CS it has been excellent. Analysts are all predicting a global surplus in production over demand for the current 2022/23 season. So why are prices some 17% higher than this time last year when we were in deficit season? Not easy to put a finger on it but it would seem a combination of short term tightness of physical supply caused by improving demand aided by the need of end-buyers to re-stock and fund buying attracted to commodities by a weakening USD, high inflation (some would argue self-fulfilling?) and limited potential in other assets.
CLOSE FIGHT FOR THE TOP SPOT Brazil and India continue to fight for top spot in the producer league. In 2021/22 India won easily as drought hit Brazilian cane while India reached record levels. The current season is a much closer contest. The completed Brazilian CS harvest reached 33.5 million tonnes which, with around 2.5 million tonnes from the North-North- eastern region, should beat India although it could be close depending on whether Indian production tails off in the latter part of the harvest as predicted. However, there is still a suspicion this may not be the case and the increased planted area will mitigate the lower cane yields. Recently, year on year production is still running over 5% higher but some trade houses are lowering their total production estimates further due to the crop maturing early and yields dropping. Some are expecting total production to fall by around 8% compared with last season’s record 36 million tonnes. What is probably not in doubt is who will win the production crown in 2023/24. The next Brazilian CS crush will soon start with the cane looking in excellent condition having fully recovered from the devastating drought that hit in 2021. Preliminary estimates put the CS cane at 600 million tonnes with sugar production at around 36 million tonnes. Of course, much will depend on the sugar/ethanol split and the Government’s fuel policy but mills are well priced for next season and prices remain well above ethanol parity.
Sugar production 36 million tonnes est.
Brazilian
CS 2023/24 estimate
CS cane 600 million tonnes est.
11 | ADMISI - The Ghost In The Machine | Q1 Edition 2023
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