A return to normal weather and the end of quotas in the European Union will push the global sugar market back to surplus next season after two years of shortages, according to Tropical Research Services.
Global production will beat demand by 1.85 million tonnes (mt) in the 2017-18 season that starts in October, according to TRS, which advises several hedge funds investing in agriculture. Output will expand 17 per cent in the EU, where producers will be free of quotas limiting their sales, and a return to normal weather in Asia will be mean a rebound in India and Thailand.
Rising global production could extend a slump in sugar prices that have tumbled about 20 per cent in the past two months. Futures are sliding as speculators pull out of the market after boosting bets to a record in September. Sugar, once this year’s hottest commodity, has now turned into this month’s worst performer in the Bloomberg Commodity Index of 22 raw materials.
“Our current forecast is for the global supply-and-demand balance sheet to return to a small surplus,” said Sean Diffley, head of sugar and cane ethanol research. “That forecast assumes a substantial increase in sugar production, partly as a result of a normalisation of global sugar weather but also as a result of a global expansion in sugar production led by India and the EU.”
Global sugar production will expand by more than 12 mt, partly as Asian crops recovers after two years of drought, the researcher forecast in a report earlier this month. EU production will rise to almost 20 mt as output in India — the secondbiggest grower — climbs to 28.7 mt. In Thailand, production is expected to jump 18 per cent to 11.6 mt, it said. Crop expansion
Higher sugar prices for most of the year have boosted the incentive for crop expansion, according to the report. At the same time, weaker currencies in many producing countries encouraged producers to sell more of the sweetener priced in dollars. A higher US currency meant “record high” prices for many emerging markets, TRS said.
Millers in Brazil’s center south, the main growing region of the worlds largest producer, will crush 566 mt of cane next year, TRS estimated. While that’s a 5 per cent decline, production will fall by only 1.3 per cent to 34.81 mt because units will allocate more raw cane to making the sweetener at the expense of ethanol. The industry has also increased their capacity to make sugar by 600,000 to 800,000 tonnes, it said.
Global sugar consumption will expand 1.2 per cent next season, below the long-term average of 1.5 per cent, according to the report. High local prices and a shrinking economy have curbed demand in Brazil, while high fructose corn syrup has gained market share in the EU and China.