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THE SUGAR MARKET VS. MACRO/WORLD INTERVENTIONS.
The Sugar market is challenging to say the least. Low sugar prices benefits consumers but not producers. We see a strong push towards Food Manufacturers to change blends aiming to reduce sugar intake and many Governments are not asking nicely but implementing a “Sugar tax” to make sugar it gets done.
In the short term, we have a World surplus for April/ March 2018/19 estimated at 4,2 mln m/t R.V. (following a surplus of 11,8 mln m/t R.V. last year) and very large stocks in India with a prospect of another large crop of around 34/36 mln m/t, well in excess of the domestic market estimated just under 26 mln m/t.
We are living a world of greater government interventions and India is well familiar with it. The main issue is that India sometimes tends to let things get too bad before acting and their actions sometimes are not enough to solve the problems, in this case high stocks of sugar and a larger one as we go along.
The India Government is “encouraging” Millers to export 5 mln m/t from October 2018 but will the market need all that? As we speak, we would need Sugar near 11 to trade in excess of UScts/lb 15/16 cts, ahead of the main harvest, to get some Raw sugar exports going. So, India is blamed for the low sugar prices. Anyone else?
We have seen the EU scrapping their export limits from October 2017 which is leading to around 3,6 mln m/t being exported, as of September 2018, up from 1,2 mln m/t one year ago. The coming EU crop is expected to be lowered due to the long dry spell at the time Beet needed rain. Exports for 2018/19 may be down somewhat, perhaps 500k m/t lower. Having said that, the domestic market in the EU is weak, under 400 euros and exports seem necessarily to reduce pressure, especially in the Northern Countries. So, the EU was also blamed!
We also have seen Pakistan “incentivising” exports and 2 mln m/t were exported from September 2017 until August 2018. For the time being, further exports are unlikely but Pakistan will once again produce more than they consumes despite the crop will be down somewhat, perhaps around 6,6 mln m/t. Will the Pakistan Sugar Government look at exports again? Well, Pakistan was also blamed for lower sugar prices.
Thailand Sugar exports are stronger this year. Raw Sugar exports, as of August 2018, were 1,6 mln m/t higher and White/Refined Sugar 564k m/t higher but as the crop ended 4,5mln m/t higher, stocks are higher. Thailand has benefited from Chinese Raw sugar policies (leading to greater White Sugar exports) and a strong demand from Indonesia in Q2 and Q3. It is likely Thailand will have a similar crop to last year and a higher carry over, therefore, more sugars would be available in 2019. So, Thailand also contributed to greater supply and therefore pressure on the market.
In Brazil the market situation is quite different as Brazil has a great Sugar/Ethanol flexibility. The long dry spell allowed for a fast harvest and a higher sugar content, but low sugar prices vs. domestic Ethanol prices, throughout the harvest, encouraging millers to maximize Ethanol production. The crop in the Northeast is likely to be similar to last year and a stronger mix, therefore the NE will also not increase sugar production. Brazil overall is likely to produce as much as 8 mln m/t less sugar during April 2018/March 2019 ending their respective crops earlier. The Sugar mix in the Centre-South may not exceed 36% vs 46% in 2017/18 therefore a large drop of 10% YoY. Does it matter?
26 | ADMISI - The Ghost In The Machine | September/October 2018
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