THE BIGGEST FACTOR IN SUGAR IS THAT IT HAS HARDLY RAINED ACROSS BRAZIL’S CS SINCE THIS TIME LAST YEAR. CHUCK IN A ONCE IN A GENERATION FROST AND ANALYSTS HAVE BEEN CUTTING ESTIMATES SINCE MARCH.


A SWEET FUTURE?


The beginning of October marks the start of a new global sugar season so it would seem timely to look back on a peculiar past season and, more importantly, polish the crystal ball for what might happen over the coming 6-9 months.


This time last year the world was in the tight grip of the pandemic with the growing realisation that it was going to be more deadly and last longer than most had predicted. It would be another couple of months before the vaccine breakthrough would be announced. Brazil was on course to produce more sugar than ever before and India was gearing up for another season of over 30 million tonne production. However, Thailand’s production had collapsed and the EU was struggling with disease due to the banning of Neonicotinoid pesticides. Global consumption had taken a hit as the world remained locked down. Raw sugar prices had improved from the single digit lows of April but were still poor at just above 13 cents.


Fast forward 12 months and the world is slowly climbing out of the Covid hole battered and bruised but, generally, defiant. The biggest factor in sugar is that it has hardly rained across Brazil’s CS since this time last year. Chuck in a once in a generation frost and analysts have been cutting estimates since March. The jury is still out on the final production but if the harvest tail is short then anything above 32 million tonnes will be a surprise. The drought


and frost damage has been so severe that it could impact on the next cane harvest. However, traders would be wise to remember that cane is very robust and give it some decent rainfall it can recover. Therefore, much will depend on the weather across the CS over the next 6-7 months especially with chatter that a mild La Nina may develop over the coming months. This drop in Brazilian production has meant that the small surplus in global production over demand expected by analysts earlier this year for 2021/22 is now moved to a deficit – the size of which is still to be determined.


Elsewhere there appears to be no production issues of the same proportion as Brazil. India looks set to produce another +30 million tonnes of sugar some 5 million tonnes more than they need domestically. The government will be relieved that prices have improved enough for an export subsidy not to be needed. Thai production is bouncing back after two seasons of abysmal production due to drought. Currently, up to 100 million tonnes of cane may be produced after falling to 67 million tonnes in 2020/21. The EU has had several issues to deal


with this season with early frosts across France and to a lesser extent, Germany killing newly emerged beet leaves adding to their pesticide issues. However, overall production is expected to increase from last season which was hit by dry weather.


On the other side of the equation things are very much more opaque. Physical demand has collapsed recently which has seen the spot month value in both raws and whites fall to a large discount to the rest of the board. Many argue that the underlying consumption is still there but end-users have dug into existing stocks at destination because freight rates have soared. Global demand has not increased significantly and it is mainly problems with congestion which some see easing before too long. Sugar, being a comparatively cheap bulk commodity, means a jump in freight costs impacts greatly on its delivered cost. The situation with white sugar has been exacerbated further with a lack of available containers. There has, undoubtably, been a drop in consumption due to global lockdowns, availability and the continuing underlying incentives to cut consumption on health grounds which has quietly continued during the pandemic. Nevertheless, it


8 | ADMISI - The Ghost In The Machine | Q3 Edition 2021


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