Ben Eastick Written by Ben Eastick

Drought To Affect EU Spring Sugar Beet Planting?

Market Position
A global surplus of around 9 million tonnes has been achieved from the 2011/12 season. Despite falling prices at the start of the year, since February there has been rising economic confidence, resulting in international sugar prices starting to rise as a result of risk premiums being priced into the market following last year’s Brazilian harvest. Commodities in general rose 4% in February, with oil and sugar rising by over 8%. The ongoing high prices appear to have had little impact on consumption. The Euro zone sovereign debt crisis and further deterioration between Iran and the West is starting to push commodity prices higher. The global production surplus has resulted in a pricing stability for the time being, although extreme weather patterns and the rising oil price would affect this stability going forward. Global sugar production is projected to reach a record 178.1 mln tonnes, 10 mln tonnes higher than last year, with 31% growth in the last decade to 2011/12.

Drought

Europe
In January prices in the EU reached their highest level since 2006. Supply tightness and shortages has led to the Committee of European Sugar Users requesting that European Commission allows local producers to sell an additional 600,000 metric tonnes into the domestic market and to allow further imports of 1 million tonnes to achieve stocks of 3.5 mln tonnes, which is 20% of consumption. 400,000 metric tonnes has been allowed into the domestic supply, adding to the 13.3 mln tonnes produced under quota. Total imports for 2011/12 is expected to be 3.1 mln tonnes resulting in closing stocks of 1.9 mln tonnes, 100,000 tonnes higher than in 2010/11. Looking ahead to the 2012 spring beet planting, there is considerable concern over a possible drought in Western Europe, in particular the UK where the major beet growing area of East Anglia has seen the driest winter since records began in 1921, with 30% below average rainfall.

Brazil
Forecasts for the 2012/13 crop is for an increase in sugar output at an estimated 33 mln tonnes. This is despite a second consecutive La Niña episode which led to dry weather in November through to February, a period vital for cane development. This in turn may lead to higher rainfall at the start of the harvesting period in May. Ageing cane, the oldest for 20 years may lead to lower sugar yields and the extra government funding for ethanol production and the end of US import duties on foreign ethanol may divert cane away from sugar production. The amount of rainfall between now and May will be critical to the cane production. Ageing cane, a surprise frost and flowering development during the 2011/12 season saw sugar production fall short of the estimated 33.5 mln tonnes at 31.3 mln tonnes, down 2.2 mln tonnes on the previous season, the first reduction in output in over a decade. As a result market is cautious regarding the estimate size for the 2012/13 crop.

Thailand
Cane crushing is progressing well due to ideal weather conditions, although there remains concern over the final sucrose yield as a result of the flooding in August and September 2011. Estimated sugar production is still expected to exceed last year to 11.2 mln tonnes. The start of the rainy season in the next month will determine the final throughput.

India
Year to date the 2011/12 overall harvest in Maharashtra and Uttar Pradesh is 15% higher than last year with sugar production expected to exceed the 2010/11 season by around 1 million tonnes to 27.8 mln tonnes, over 2 million tonnes higher than domestic consumption.

USA/Mexico
The US tight domestic sugar supply has been eased a little by a small increase in domestic production and a sharp increase in Mexican imports. Year to date the cane harvest in Mexico is down 7% to 5.4 mln tonnes and sugar production is down 14% with sugar consumption at 4.1 mln tonnes. US sourced High Fructose Corn Syrup has replaced 1.3 mln tonnes of the Mexican sugar consumption. Both the US and Mexico will be importing significant amounts of sugar in the middle of 2012.

China
Drought leading up to the cane harvest in the Guangxi region followed by rainfall since has reduced yields and the current estimate for the 2011/12 crop now stands at 6.8 million tonnes. In the north of the country the beet crop is also below initial expectations, so the estimate for Chinese production is 12.2 mln tonnes. The domestic shortfall of 3 million tonnes will probably result in China becoming the biggest sugar importer in 2012.