May 13, 2015
Sugaronline | http://goo.gl/ZSWTVC
Thai sugar market participants shrugged off Wednesday any potential impact on the country's production after Australia's Bureau of Meteorology (BoM) confirmed this week that for the first time in five years the tropical Pacific is in the early stages of what will be a "substantial" El Nino, according to Platts.
El Nino is a weather phenomenon that develops about once every five years on average caused by warming temperatures in the Pacific Ocean that can alter wind flows and rainfall patterns. It usually lasts for nine to 12 months but can linger for longer. There has not been a strong El Nino since 1998.
"Overall I think there will be no big impact, even if we have a strong El Nino. Normally it does not affect much of Thai production, it would more likely have some impact in China, which would be a little dry," a trader said.
"Brazil will be a little wet, where there must be moisture on the soil, so I do not see El Nino being a problem there. I am not bullish at all," he said, adding he expected the sugar recovery rate could "suffer a little", but the higher yield forecast next year would offset the El Nino effect.
Despite expectations of drier weather, a majority of market participants who spoke to Platts earlier this month anticipated a higher yield than the current season, given a higher%age of farmers switching from rice to sugarcane.
Expectations ranged from 107 million tonnes of cane crushed, to one trader it could "easily" hit 115 million tonnes. But it was agreed 110 million tonnes was a more likely figure, up from the 106 million tonnes crushed this season.
Recovery rate estimates ranged from 10.4-11%, putting the final production forecast for the 2015/16 season in the 11.4-12.1 million tonnes range.
Traders said it was premature to tell exactly what the outcome might be if El Nino does turn out to be a strong one.
"It is too early to say what impact the El Nino and rainy season will have in Thailand. We expect conditions to be much the same and just as hot as last year, and people are forecasting a much higher crop for next year," a Hong Kong-based sugar trader said.
One Thailand-based sugar broker said that with the wet season due to start in coming weeks, this will have a significant say on soil quality heading into the new crop year.
"We were expecting El Nino last year, which was dry, but it failed to materialize. This year is still dry but we have the rainy season starting by the end of May. Despite the dry, the Thai crop is still expected to be bigger than this year," he said.
"There is still a lot of sugar being stored that must still be released into the market at some point. The sellers are not happy with the price, and so are holding onto the sugar," he said, adding this could help alleviate any additional pressure from El Nino.
Even for Australia where the El Nino was confirmed and is expected to cause significant hot and dry weather through parts of the country, market sources were cautious.
"Two months ago everyone was making noise about dry weather this January and early February, but in the last two months the Australians had very good rain, higher than average," one trader said.
"The crop is to be the biggest ever in some regions. For next year's crop we still have a long way to go, so it is too soon for any bullish view," he added.
When the last El Nino occurred in 2009/10, the BoM said the overall effect was weak, although there were still widespread areas of below average rainfall for 11 months across Western Australia.