AT THE BEGINNING OF THE YEAR THERE HAD BEEN A LOT OF SOMEWHAT HYSTERICAL TALK OF COMMODITY SUPER CYCLES DEVELOPING.
is very difficult to quantify with most analysts believing global consumption levels are, possibly, a little higher than pre-pandemic at best. In time the buyers will have to turn to origin for supply. Whether freight rates will be lower remains to be seen but it could lead to physical tightness with the consequence of higher prices.
At the beginning of the year there had been a lot of somewhat hysterical talk of commodity super cycles developing. This chatter has become rather muted over the past few months as prices of virtually all commodities have fallen from their early year highs. Sugar prices remain at relatively high levels although, recently, the funds have started to cut their long-held longs which has pulled prices off their 4 ½ year highs reached in the middle of August. One of the consequences of the 20 cent plus levels reached was that Indian exporters took full advantage and sold raw sugar for 4th quarter this year into 1st quarter next year.
What are the prospects for the sugar market over the coming 6-9 months? The two biggest factors will be Brazilian sugar production and global demand each of which being mainly influenced by two factors impossible to predict – weather and the pandemic. Assuming rainfall across Brazil’s CS is plentiful through to the beginning of April then production will probably improve back to around 35 million tonnes. If La Nina lingers then it could be another poor cane crop and production might not improve much. In the short-term India can plug some of the shortfall from Brazil as they have during the current season through existing stocks and surplus production next season. However, stocks will diminish and assuming ethanol production increases as predicted, then the huge surpluses of the past will be more unlikely and Indian production will become more balanced. Demand will, surely, pick up as destination stocks and freight rates drop. Actual global consumption should, ultimately, return to year-on- year growth. The upside is, obviously,
always open to a weather shock but a rally above 22 cents would seem unlikely but, by no means, impossible in the short to medium term. The good news for producers is that the downside also looks limited to probably around 18 cents which would be just below Brazilian ethanol parity and above most of their production costs.
So, at the moment, the fundamental picture looks positive for sugar…but just a word of warning - the picture looked similar at the beginning of 2020.
Howard Jenkins E:
howard.jenkins@
admisi.com T: +44(0) 20 7716 8598
9 | ADMISI - The Ghost In The Machine | Q3 Edition 2021
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