Rabobank in business

7-7-2008 | Other news

With continuing uncertainty in global financial markets and in key commodity markets (above all oil), there remains the possibility of further bouts of volatility in the sugar market as a consequence of turbulence in other markets.

• Stronger demand and supportive corn and ethanol prices together with a weaker USD have pushed sugar prices higher in June.
• Harvest in Centre/South region of Brazil has been plagued by wet weather, impacting production expectations.
• Global stock overhang from two years of substantial surplus production will continue to weigh on prices throughout 2008/09.   

Sugar prices
Declining sugar prices coupled with a modest downturn in freight rates finally drew out new demand and a sharp turn-around in prices in early June. The market also received a further boost from the rise in corn and ethanol prices in the US following the floods in the Midwest region. Further declines in the US dollar and gains in oil prices were also supportive. 

World sugar fundamentals
Beyond these shorter term issues, the outlook for the international (Oct/Sept) 2008/09 crop year is becoming an increasing influence on current sentiment. espite a tighter global balance, there remains the accumulated global stock overhang from two years of substantial surplus production.

Brazil
Looking ahead, a pivotal influence on market sentiment in the months to come will be the progress of cane milling in Brazil. Doubts have been voiced about the ability of the industry to process the entire cane crop this year, especially if the rains that mark the end of the milling season were to begin in November instead of December.

At this stage, domestic ethanol sales are currently going from strength to strength, with records being broken on a monthly basis. Rising ethanol prices in the US have encouraged Brazilian players to raise their expectations for ethanol shipments into the US market this year. 

Russia
Elsewhere, the pace of Russian import demand is expected to rise following the seasonal reduction in the import tariff which took place at the end of May. Even with high freight rates and the lower but not inconsequential import tariff, there is plenty of incentive for imports to take place.

India
Meanwhile, high freight rates have generated a substantial margin of freight protection for Indian exports into the Gulf region, at the expense of Brazilian shipments. Further ahead, a USD 32/mt internal transport subsidy on offer from the government, is due to be removed at the end of September.