July 6, 2015
Sugaronline | http://goo.gl/yk4LPd
The coming global sugar deficit will do little to lift prices, which will remain "under pressure" in 2015/16, Rabobank said, dealing a blow to hopes for sugar futures recovering far from six-year lows, according to Agrimoney.
The bank forecast that while recent weaker prices would typically shut off production, "government intervention has prevented the transmission of world market price signals to producers".
Countries such as India, the second-ranked sugar producer, have offered support to mills in the face of weak prices of the sweetener worldwide.
The result is that world sugar output will see little change next season and, while consumption will grow, it will result in only a "small" output deficit, of 3.4 million tonnes.
That will make "only slightly dent the huge amount of stocks that have been built up over the past five years", the bank said, revising to a surplus of 1.8 million tonnes, from a 700,000-tonne deficit expected in April, its estimate for the production balance in 2014/15, when it also forecast a "much larger" deficit for 2015/16.
The forecast follows a report released by the OECD and the UN food agency, the Food and Agriculture Organization (FAO) last week, which saw sugar prices falling in real terms over the next decade.
Indeed, Rabobank saw little reason to be optimistic on values, noting that "there is no indication at the moment of how low sugar prices can go in the absence of any supportive developments".
Rabobank played down hopes that the prolonged low prices would trigger a buying boom.
"The sugar pipeline is full" Rabobank said, meaning that importers are unlikely to increase buying in the short term, even if prices fall further.
In the past two months Asian agribusiness Wilmar has taken delivery of 2.3 million tonnes of raw sugar from the global commodities market, glutting its refinery capacity with no sign of triggering sustained rally.
There are hopes that this El Nino, which can cause dry weather in some key producing regions including India and South East Asia, will lift prices thanks to the knock-on effects on production.
But the phenomenon "no news to the market" said Rabobank, downplaying the potential for price upsides.
Although Brazil has been upping ethanol production, for use in the national biofuel market, Rabobank projects only a small swing to ethanol production next, with ethanol production in the key Centre South region up 2.4% to 26.7 billion litres, while sugar production down 0.4% to 31.9 million tonnes.
This would come against a backdrop of a rising cane harvest, estimated at 586 million tonnes, a gain of 2.6% year on year.
The estimates are in line with those from some other commentators.
In May, analysts Datagro pegged expectations Brazil's Centre South region, where the large majority of the cane crop is harvested, to produce 590 million tonnes of cane, while raw sugar production was seen falling back by 190,000 tonnes to 31.8 million tonnes.