Monday 13th Jul, 2020

Sugar prices expected to rise

Charles Clack and Christian Lando
Charles Clack and Christian Lando

Global sugar stocks are set to drop in 2019/20 with domestic prices forecast to rise to around $450 per tonne by the end of the year, according to market analysis from Rabobank.

Rabobank sugar analyst Charles Clack said there is “light at the end of the woods” for sugar growers as supplies are set to come back into balance, in line with five-year averages.

“This doesn’t mean we will see a strong jump in sugar prices, but with the global sugar market set to run up a deficit next season – as consumption exceeds production – there is certainly some upside to the price outlook,” Clack said.

Rabobank projects a 4.2 million tonne deficit in 2019/20, off the back of this season’s small surplus which is anticipated to be around 600,000 tonnes.

“This signifies a huge rundown in stocks, from the nine million tonne surplus in 2017/18,” Clack said.

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“While global stocks will continue to weigh heavily on the market for a few more months yet, the market will start to come back into balance as we approach the end of the year.”

Rabobank expects Indian and Thailand sugar production to drop after two near-record harvests.

Dry weather in India threatens to impact the country’s output, which is expected to drop by three million tonnes.

Clack said the biggest swing factor in terms of production will be Brazil and whether it switches cane earmarked for ethanol production to sugar.

“This ‘switch’ depends on the sugar price compared to ethanol – and while this price arbitrage is narrowing – it still currently favours ethanol,” he said.

If prices rise sharply, Clack said this would result to a switch towards sugar, which could keep a lid on sugar process for the next couple of months.

“As the Brazilian harvest progresses, their mills capacity to react to a rising sugar price will steadily diminish, so by the end of the year we expect fundamentals to push the international price to around 13.6USc/lb, from 12.5USc/lb currently,” he said.

“The domestic price exhibits stronger upside potential, however, with the lower Australian dollar and domestic prices expected to head up towards AUD 450/t by Q4 2019, from AUD400/t currently.

“Australia and Brazil have both commenced formal proceedings with the World Trade Organisation over India’s sugar subsidies and allegations of dumping sugar onto the world export market, but this process is bound to take time and, as yet, no action has been taken.”