Global sugar production to accelerate in 2017/18
Informa’s Agribusiness Intelligence has released its latest predictions that the worldwide sugar market is to experience a record year of production to 192 million tonnes by the end of this season.
Despite this, the data provider goes on to state that prices have experienced good support recently, mostly on notions that Brazil will produce less sugar in 2018/19 as ethanol is currently the more attractive product.
The biggest driver behind the record output this year will be the EU, India and Thailand. In Brazil sugar production will remain flat as more sugar cane has been diverted toward ethanol production during the second half of the season as a result of local market factors.
Expectations that mills will continue to focus on ethanol in 2018/19 as well has prompted the price of sugar to recover from a four year low. In October 2017, for the first time in over a year, there was a year on year increase in local sales of ethanol of 11%.
This accelerated to a plus of 16% in the first half of November. According to Informa, the most important reasons for the attractiveness of ethanol vs. sugar are: the relatively high price of gasoline at the pump, an advantageous tax structure, recovering fuel demand as the Brazilian economy is moving out of recession and the low sugar price.
Within the EU, the market is still responding to the scrapping of production quotas for sugar refined from sugar beet, which is creating a huge jump in production. In the EU, 20m tonnes of sugar will be produced by the end of 2017/18 which is an increase of 3m tonnes compared to the previous year.
This growing trend has not been supported by domestic consumption which has been declining in the EU steadily over the last few years. This will have a direct impact on the trade balance of EU countries, with imports declining and exports could double to as much as 4m tonnes by the end of 2017/18.
Sugar producers in Thailand are expected to produce a record crop in 2017/18 as the country recovers from the dry season caused by the El Nino weather system. The crop this year is expected to reach a record high of 12m tonnes which is 1.7m tonnes more than last year.
The country has been following a policy of subsidising domestic farmers for sugar cane production which has artificially kept the export price of sugar low. As a result, Brazil has threatened to complain to the WTO and in order to avoid this Thailand has agreed to reform its policy.
Stefan Uhlenbrock, senior commodity analyst at F.O Licht, part of Informa’s Agribusiness Intelligence, concludes, “The link between oil prices and sugar prices in Brazil continues to strengthen in 2017/18 and, as the world’s biggest producer and consumer of sugar, this is determining global prices.
“Elsewhere in the world the outlook for sugar production remains strong, with record crops expected in many markets this year. This has already dragged prices lower.
“However, as Brazil is likely to produce less sugar in 2018/19 the market may have found a floor for now. Nevertheless, consumers in most markets can look forward to a year with rather low sweetener prices.”