Rabobank Sugar Quarterly Q2: Small global deficit in 2014/15 to end four years of surplus

The global sugar market has been trading sideways in the past three months, as prices have been confined in a range between USc 16.5/lb and USc 18.5/lb, according to Rabobank’s Sugar Quarterly Q2 2014. Brazil continues to send conflicting signals to the sugar market. While initial cane production estimates of 570 million tonnes and 32.8 million tonnes of sugar remain for the region, this is subject to revisions, depending on how the weather progresses in the coming months after a long dry period. World production overall is expected to decrease slightly for the second year in a row, suggesting that low prices during the last couple of years may finally be generating a response. Preliminary global production estimates for the 2014/15 (October/September) global balance, suggest a projected deficit of 0.9 million tonnes raw value.

“Despite a return to a global deficit for the first time in four years, the projected deficit is currently very modest, and is not enough to materially reduce the level of year-end global stocks”, stated Rabobank analyst Andy Duff. “Nor does it look sufficient to significantly impact the global stocks/consumption ratio. For this reason, our preliminary balance for 2014/15 suggests only limited additional support for prices from fundamentals as we move from the current international crop year to a new one.”
Regional Outlooks
India: The Indian government has extended the subsidy of INR 3.33/kilogramme (USD 54/tonne) for exports of up to 4 million tonnes of raw sugar over the next two years until September 2014, at the same time increasing import duty on sugar from 15 percent to 40 percent. Sentiments and price outlook for Indian sugar seem to be marginally positive in the short run.
Indonesia: Sugar production levels are expected remain close to 2.6 million tonnes, with no significant increase in production area for 2014/15. The glut of sugar stocks has kept domestic prices hovering slightly above or right at the price floor and with the government expected to once again issue import licenses to refiners during an election year, a further 3.2 million tonnes of sugar may supplement the glut.
Thailand: El Niño events threatens to hamper replanting efforts and final production numbers could be closer to 10.5 million tonnes, rather than 12 million tonnes. Thailand’s current political instability also threatens the traditional labour force.
China: China’s 2013/14 season saw a drastic fall in sugar beet production, with only a marginal increase in cane production. The result was a 3 percent YOY drop to 14.3 million tonnes raw value of sugar produced. 2014/2015 expected tonnage will be less still, at 13.4 million tonnes.
Brazil: The Brazilian Centre/South cane harvest continues at full steam. Dry weather in the past months allowed mills to work at full capacity, and accumulated cane crushing rose 3.7 percent above the previous season. Crop potential may be hindered by dry weather.
EU: The EU’s downward price trend dropped a further 22 percent over the last 15 months as comfortable supply has effected domestic price. In most cases, EU sugar producers have seen profit margins decrease in contrast with previous years.
US: The USDA’s sugar production prospects for 2014/15 indicate that production will decline for the second year in a row. However, Rabobank predicts potential for volume to increase as expected prices could incent more production.
Mexico: Strong exports continue with total exports reaching 2.5 million tonnes, an increase from the last cycle of 2.2 million tonnes. Under the current US lawsuit against Mexico sugar exports, Rabobank expects exports to the US to shrink to 1.5 tonnes while exports to the rest of the world may continue at current levels.
Australia: Outlooks suggest, at least, a 70 percent chance of an El Niño event around September 2014, typically bringing drier-than-average conditions and continuing the favorable conditions witnessed in the first half of the season. Depending on the intensity and duration of an El Nino event, Australian cane and sugar production could be boosted on an aggregate basis.