especially as the country looks likely to receive three consecutive years of good monsoon rains. Efforts to increase ethanol production are being cranked up by the government but it is hard to see any impact on sugar production for next season. Undoubtably, the government are likely to have to subsidise exports again but they are unlikely to be as generous as in the past. India has been particularly hard hit by Covid over the past few months and, consequently, consumption has been hit. Therefore, their huge stocks have not diminished despite the exports and are likely to end at a similar level this season as last.


Brazil regained its position as the world’s largest sugar producer last harvest with their CS region producing a massive and record 38 million tonnes. This was due to ideal crushing weather and a high sugar/ethanol split due to a, pandemic inspired, collapse in ethanol prices. Unfortunately, the weather has remained dry over much of southern Brazil and has impacted on the cane. How much is still to be established, but most analysts suggest 35 million tonnes at best, with some much more pessimistic. Cane does have a remarkable ability to recover with rain, but the sporadic rains received recently have not been sufficient to spark any significant revival as yet. So far, the harvest has seen better than expected production, but there is a nagging fear that yields will soon start to fall, and as seasoned traders know


INDIA HAS BEEN PARTICULARLY HARD HIT BY COVID OVER THE PAST FEW MONTHS AND, CONSEQUENTLY, CONSUMPTION HAS BEEN HIT.


THE EXCITEMENT OF A SUPER COMMODITY CYCLE DEVELOPING HAS ABATED SOMEWHAT FROM A FEW MONTHS AGO.


when production starts to fall it rarely recovers. Therefore, all eyes will remain on Brazil and the twice monthly Unica harvest updates.


Elsewhere, things are rosier for 2021/22. Thailand is expected to see an improvement in their cane crop resulting in, perhaps, around 10 million tonnes of sugar. EU production is expected to improve from last season’s poor output despite the continuing issues with the banning of Neonicotinoid pesticides and early damage to the emerging beet plants in France and, to a lesser extent Germany due to a late hard frost. Prospects for slightly higher production in US and Russia while most other producers see similar figures to this season.


Most analysts are, currently, suggesting that the global S&D will move from a small deficit this season to a small surplus next season of perhaps around 2 million tonnes. Needless to say, if the situation in Brazil deteriorates further then this surplus could quickly disappear. However, as has been the case during the current season, India exporters will be ready to plug any supply gaps. Therefore, the size and scope of any export subsidy will be important, pricewise, later this year.


Global consumption has taken a hit over the past 15 months due to the pandemic and resulting lock-downs. Many were confident consumption would soon recover once the vaccine rollout allowed


some sort of normality. However, restrictions remain in many areas with new lock-downs in some countries replacing the lifting in others. The ISO recently cut their global latest consumption estimate for the current season by 1.4 million tonnes from earlier estimate due to an upsurge of the virus in Brazil and India. Nonetheless, it would seem inconceivable consumption will not improve over the coming year but probably only to the levels seen pre-pandemic.


The excitement of a super commodity cycle developing has abated somewhat from a few months ago. Nevertheless, agricultural commodity prices remain strong, underpinned by bullish fundamental weather issues and robust demand from the likes of China. Add concerns over rising inflation and the funds remain steadfast long. They will also be aware that food prices are at their highest for more than 10 years according to the United Nations food agency although, some would contend the funds have been instrumental in the increases. They are sitting on very healthy profits but are unlikely to relinquish their positions for the time being, unless the pandemic takes an unexpected turn for the worst.


Sugar will continue to be influenced by the wider economic picture but, ultimately, it will be Brazil’s sugar production that has the greatest say in price direction over the coming months and, perhaps, for the 2022/23 season as well.


Howard Jenkins E: howard.jenkins@admisi.com T: +44(0) 20 7716 8598


7 | ADMISI - The Ghost In The Machine | Q2 Edition 2021


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