17 July 2018 ( Lagos ) : Global raw sugar prices continued its free fall in the first half of 2018 (-20%), reflecting the +17.8MMT jump in production to 191.8MMT over the 2017/20188 season. This combined with a modest increase in consumption (+3.3MMT to 174.1MMT), lifted the surplus position to a four-year high of 17.6MMT (vs. surplus of 3.2MMT in the prior season). On supply, the increase in production stemmed largely from India, Euro area and Thailand.

Higher growth in India (+10.2MMT) resulted from a 10% jump in average cane yield as well as receding sugarcane arrears9 from earlier seasons which increased availability of cane for supply to mills. Over in the Euro area, boosted output reflected higher yields from favourable planting conditions which drove sugar production to rise +2.8MMT while in Thailand (+3.7MMT), farmers substituted planting of cassava with sugarcane due to relatively attractive returns which in turn improved output within the region. On the demand side, the consumption growth of 3.3MMT stemmed from higher orders in India, United Arab Emirates and Bangladesh with a combined increase of 2.2MMT over the period.

Going forward, global raw sugar production is estimated to drop 3.6MMT to 188.3MMT due to lower production in Brazil, Euro area and Pakistan which more than offset output growth in India, Thailand, and China. Importantly, raw sugar production in Brazil – world largest sugarcane producing country – is forecasted to decline by 4.7MMT in the next season owing to higher ethanol prices relative to raw sugar which is prompting diversion of sugarcane towards ethanol production rather than raw sugar. 

Elsewhere in the Euro area, a return to average yields compared to last year’s record yield level drives the expected output decline (-850KMT) in the region while in Pakistan, forecasted decline of 900KMT is due to delay in sugarcane payments which combined is stirring farmers to switch to other crops. On consumption, against the backdrop of growing population and strong demand from food processors in India10 and Pakistan, consumption is forecasted to rise 3.5MMT to 177.6MMT. 

Net impact of the supply and demand projection translates to a narrow surplus of 10.7MMT (vs. surplus of 17.7MMT in the prior season). Irrespective, given the strong surplus picture and growing ending stocks (+7.5MMT to 49.5MMT), analysts expect raw sugar prices to remain lower over the rest of 2018.

Source: ARM Securities Limited

Reporting for EasyKobo on Tuesday, 17 July 2018 in Lagos, Nigeria

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