Ben Eastick Written by Ben Eastick

Sugar Supply To Be Determined By Possible Extreme Weather Patterns

Market Position

April/May saw a reduction in world market prices, followed by June/July experiencing rising prices again. These rises are a direct result of supply concerns resulting from a probable return to El Niño, insufficient monsoon rains in India and low yield of total recoverable sugar from the Brazilian centre south crop. Better weather in August has seen the Brazilian market price start to soften again. The El Niño phenomenon may take hold as early as September, caused by rising Pacific sea temperatures. The effect results in lower rainfall in central America, India and south-east Asia and higher rainfall in Brazil’s centre south, southern United States and Mexico. While this would affect the 2012/13 harvest in the latter group, the drier weather could benefit sucrose levels, harvesting and aiding logistical operations in Australia, central America and India.  Looking ahead to the 2013/14 crop this year’s El Niño effect would facilitate planting and early development of next year’s crop in Brazil, southern US and Mexico due to the raise in soil moisture, while the drier weather in Australia, central America and India would restrict irrigation supplies and stunt cane growth. With the world’s largest producer (Brazil) being affected differently from the world’s largest consumer (India) the market will react to any supply risks caused by extreme weather patterns. A global sugar surplus for the 2011/12 crop will be 9.2 million tonnes, with estimates for the 2012/13 crop at a reduced surplus of 4.3 million tonnes. The Eurozone sovereign debt crisis continues due to a lack of fiscal consolidation with economic slowdown from major economies, China and the US as a result of a weak job market and slow consumer spending, which continues to unsettle the markets.

Europe

Predictions for another record beet crop for 2012/13 have now been down graded following disappointing beet test as a result of the cool and wet spring. In France beet yields are their lowest for 6 years with sucrose content down 1.3%, compared to the previous years’ average. EU sugar estimates for the 2012/13 harvest is around a million tonnes short of 2011/12 record harvest of 18.5 mln tonnes. Harvesting in Russia started up last month with Ukraine following this month. The yields appear to be slightly up although there was a fall of 11% in planted area which will reduce total output which has not been helped by the arid conditions in the southern regions.

Brazil

A delayed start to crushing in the centre south in April followed by much needed rain which continued throughout the whole of June (wettest for 12 years) had severely restricted harvesting the cane crop while also reducing the total recoverable sugar yield. The rains also disrupted port loading operations with 88 vessels waiting around 20 days to load. July/August saw very dry weather in the centre south, which has increased crushing capacity. Rains in the north/east during March-June were 50% less than normal, which will impact on the 2012/13 crop.

Thailand

Dry weather since January has been a concern with regard to the upcoming 2012/13 harvest. First estimates are for a crop of 99.7 million tonnes of cane, due to a 3% increase in planted area. Sixteen percent less rainfall than normal will result in an estimated 1% decrease on cane yield, although dry weather in the autumn could potentially raise sugar content ahead of the harvest.

India

Twenty eight percent less rain has fallen during the monsoon season in the cane growing regions since June. This may well affect the 2012/13 crop with the Maharashtra region reducing it forecast by 2 million tonnes from last season. Reservoir levels are 22% below average which will impact on cane plantings later in the year. With rising domestic prices up 14%, the government is considering possible curbs on exports, sugar stock control and import duties. Above average rainfall is needed in the coming months.

Australia A slow start to the 2012/13 harvest as a result of unprecedented rain showers affecting Queensland farmers in June/July affected sugar for export. Since August the longer term outlook remains more positive with harvesting now at full tilt. Total output to the end of the year is estimated at 4.4 mln tonnes. A drier summer caused by El Niño will aid harvesting and contribute to 2013/14 plantings.

USA/Mexico

Mexico’s 2011/12 crushing season ended with 5.05 million tonnes of sugar being produced, slightly down on 2010/11. Despite higher cane volumes, heavy rains in February reduced sucrose yields, although the tail end of the crop improved. This allowed adequate supplies to be exported to the US domestic market. Estimates for Mexico’s 2012/13 cane crop look set to increase to 5.4 mln tonnes. In the US, estimates for the US sugar production is for a 5.4% increase over 2011/12 at 7.53 mln tonnes. The drought in the US grain belt has not affected beet sugar in Minnesota and North Dakota (57% of total crop) with planting completed early this year, with reports of the yields being excellent.

China

The demand for meat from the expanding middle class is seeing China’s soya demand growing at 10% per year and the government acknowledges the potential consequence of resource and food shortages, which as predicted has seen China become the largest sugar importer to increase stocks significantly during the last few months, while domestic sugar production remains at an all time high.