Since February this year, prices have collapsed to levels that have put all sugar producers under severe financial pressure. The convention that cane and beet prices in many countries are pre-agreed with farmers well before the crop is grown has exasperated things further. Therefore, for the first time for many seasons, Brazil’s sugar production is being cut because of price (and some dry weather). It is more than likely that their sugar production will fall by over 20 per cent in 2018/19 from the previous record season. However, there is precious little evidence as yet that production will fall elsewhere. The EU will see a drop but this is mainly due to dry and hot weather during the main growing season. Indeed, as mentioned above, sugar production in India and Thailand could hit record levels. These countries surpluses will easily off-set production drops in Brazil – hence the expected global surplus for 2018/19.
EU FARMERS WILL BE PAID LESS FOR THEIR BEET SO WILL PRODUCE LESS.
So, with another global surplus, it is unlikely prices will improve dramatically anytime soon, especially as the Asian monsoon has passed with adequate rainfall. There is some chatter about El Nino developing during next winter but it is not expected to be anywhere near as severe as in 2014-16. Therefore, it seems likely that the market will have to wait well into 2019, in the hope that a weather issue will develop to cause global production to decline to the extent that it causes a supply deficit, which will see a sizable drawdown in stocks. The worry is that nothing occurs to cause a dramatic drop in production, which results in another small surplus in 2019/20.
However, there is optimism that other factors will help stifle production. Brazil is likely to divert even more cane to ethanol. EU farmers will be paid less for their beet so will produce less. Indian farmers will grow tired of waiting to be paid and substitute cane for other crops, as will Thailand. They will also both start to use cane for ethanol production. Then, perhaps, sugar demand might outstrip supply and prices can improve back to above 20 cents.
Howard Jenkins E:
howard.jenkins@
admisi.com T: +44(0) 20 7716 8598
5 | ADMISI - The Ghost In The Machine | September/October 2018
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