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Posts Tagged ‘Russian beet

The how and why of sugar’s 30-year high

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Raw sugar prices have been rising in the world’s commodity exchanges following speculation that India, the world’s second-largest producer of sugar, is considering restricting exports to rebuild its inventory. The international financial press is reporting that the price of raw sugar in the commodity markets surged to a high as dry weather constrained output in Brazil, the world’s biggest producer, and on news that India may cap exports to boost domestic supplies. The last time sugar was as high was in January 1981. It has in recent days gained $16.10 to $751.10 per ton on the NYSE Liffe in Britain, a 2.2% increase.

“India is really the big question overhanging the market,” London-based trader Jake Wetherall of Rabobank International told Bloomberg. “It looks like India’s going to have a fairly good crop this year – it should be over 25 million tons for the first time in a few years – but the question is how much the government decides is going to be made available for export.”

Bloomberg reports, quoting industry association Unica on 28 October 2010, that output in Brazil’s Center South, the country’s biggest producing-region, dropped 30% in the first half of October from a year earlier. Stockpiles in India, the second-largest grower, are about 4 million metric tons, compared with the nation’s preferred level of 10 million tons, according to Rabobank International.

Raw sugar for March delivery rose to 30.12 cents/pound on ICE Futures U.S. in New York. Earlier, the price reached 30.64 cents, the highest level for a most-active contract since 15 January 1981. Sugar has more than doubled since touching a 13-month low on 7 May 2010 on concern that adverse weather will reduce output in Brazil, Russia, China and Pakistan.

Societe Generale SA raised price forecasts for raw and refined sugar, citing lower crop forecasts. Raw sugar in the fourth quarter will be 29.2 cents, up from a 17 September 2010 estimate of 17 cents, Emmanuel Jayet, an analyst in Paris, said in a report. The estimate for white sugar was raised to $744 a ton from $515.

Many sugar buyers have been relying on India, the world’s second-biggest producer of sugar, to keep export supplies running early next year, with the cane crushing season in top-ranked Brazil winding down this month. India has yet to make an announcement on its export policy, and government sources on Thursday said that the country, recovering from two seasons of sugar deficit, would not permit wholesale shipments for now. The comments added to fears of a supply squeeze as traders believe that Brazil’s sugar production may fall in 2011-12, affected both by dry weather as well as the credit crunch, which slowed investment in new mills and cane plantings.

On 4 November 2010 however Reuters reported that India will allow an additional 930,000 tonnes of sugar exports after 15 November 2010. The news agency quoted an unnamed government source. “So far we have allowed less than 600,000 tonnes. After 15 November 2010 we will allow more but after that we will go slow. Exports will only be allowed in a calibrated manner,” the senior government official told Reuters.

On 26 October 2010 Agrimoney had reported that world sugar prices are set to remain at elevated levels for years, to ensure producing countries – and notably Brazil – ramp up output to meet demand growth of more than 50% over the next two decades. Agrimoney quoted leading sugar industry trader Czarnikow. The briefing did not name a figure for sugar prices. However, Czarnikow’s head of analysis Toby Cohen told Agrimoney a figure of 22 cents/pound may be necessary to ensure sufficient supplies.

The group forecast that world sugar consumption will rise to 257m tonnes in 2030, boosted by growth in China and India, where rising wealth and population growth will foster doubling in demand. “Asia will become the largest sugar-consuming region, reflecting the rising economic status of India and China,” Czarnikow said in a report published to coincide with the annual sugar industry gathering in London. China, where urbanisation would give sugar demand an extra spurt, taking the country’s consumption above the European Union’s by 2014, was “clearly set to demonstrate significant demand growth”.

However, prospects for production growth were more uncertain, with land in many large producing countries, such as India and Thailand in short supply. In China, cane area “will come under increasing pressure” from rice which, as a staple food, is “likely to take priority. The US, there are plans to reincorporate some cane land in Florida into the Everglades national park. This leaves Brazil, which has a “comparatively unconstrained” ability to expand cane area, as likely to increase further its dominance over world production, of which it currently provides 23%, and exports, of which it is responsible for about 60%.

Importers and consumers are set “to become ever more dependent upon Brazilian supply”, the briefing said. “However, as with any investment, it will have to be paid for by higher returns and, as the market evolves, we believe sugar consumers will need to adjust to higher prices.” Brazilian investment will be needed in infrastructure as well as directly in sugar production, Czarnikow added, stressing the country’s logistical bottlenecks, which were evident in a struggle this year to keep up with demand. The report also highlighted the potential for the European Union and Russia to return to sugar exports.

What does Czarnikow say in detail about sugar? (1) We have revised our growth forecast for 2010-11 down from 17.4m mtrv to 14.8 m mtrv. (2) During 2010/11, we project cane sugar production to rise to 137.9m mtrv from 123.1m mtrv last year, while beet sugar production is unchanged on last year’s at 34.3m mtrv. (3) We are estimating global consumption in 2010 at 167.9m mtrv rising to 171.3m mtrv in 2011.

“Although it is still very early in the cycle, the idea that next year’s sugar balance will be resolved through an increase in global production now seems less certain. Extreme weather conditions in Russia and Pakistan have crushed hopes of an increase in production in the 10/11 season, while growth in many other areas of the world is not likely to be as strong as first expected.”

Here is a country breakdown provided by Czarnikow: Brazil – The mid-August total of 338 million tonnes of cane crushed represents round 60% of the CS Brazil cane total and we are expecting total production to reach 41.7m mtrv. India – Indian crop prospects for 2010/11 continue to look promising; we expect sugar production to increase by around 30% to reach 27.1m mtrv. Pakistan – Although serious floods have displaced up to 20% of Pakistan’s population, we are holding our figure unchanged at 3.75m mtrv. EU – Our projection has been revised down by 0.4m mtrv to 16.2m mtrv. Russia & FSU – Russian beet crop prospects in Central and Volga regions have been damaged by a heatwave, so we have reduced our production estimates from 4.1m mtrv to 3.3m mtrv. China – We expect 13.2m mtrv during 2010/2011, but with consumption at 16.1m mtrv, the country will be in deficit. Thailand – The forthcoming crop is now expected to reach a similar level to last year at around 7.6m mtrv, down from our initial estimate of 8.4m mtrv.

Who is Czarnikow? “Czarnikow operates from a head office in London and a network of 10 regional offices to service clients and customers globally. Commercial involvement in physical sugar transactions in excess of 8 million tons of sugar each year assures that we have a first hand presence in all major sugar markets of the world. Czarnikow has been in the sugar business since 1861 and is the premier provider of world sugar market services.”