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New sugar report indicates small global deficit ending four years of surplus

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The Rabobank Sugar Quarterly Q2 report indicates a marginal global deficit to end four years of surplus production. However, the deficit is unlikely to significantly impact year-end global stocks.

According to the report, global sugar prices have been confined in a range between USc 16.5/lb and USc 18.5/lb. Brazil’s initial estimates of 570 million tonnes of cane production and 32.8 million tonnes of sugar are subject to revisions based on the progress of weather in the coming months after a long dry period. World production overall is also expected to decrease slightly for the second year in a row; preliminary global production estimates for the 2014/15 (October/September) global balance suggest a projected deficit of 0.9 million tonnes raw value.

Rabobank analyst Andy Duff observes that despite a return to a global deficit for the first time in four years, the projected deficit is not enough to materially reduce the level of year-end global stocks or impact the global stocks/consumption ratio.

Regional outlooks

India: Subsidy on exports has been extended while import duty has been increased substantially. The Indian government has extended the subsidy of INR 3.33/kilogramme (USD 54/tonne) for exports of up to 4 million tonnes of raw sugar over the next two years until September 2014 while increasing import duty from 15 percent to 40 percent. Price outlook for Indian sugar seems to be marginally positive in the short run.

Indonesia: Sugar production levels are expected to remain close to 2.6 million tonnes, with no significant increase in production area for 2014/15. The glut in stocks has kept domestic sugar prices hovering slightly above or right at the price floor. This glut is likely to be supplemented with an additional 3.2 million tonnes of sugar as the government is expected to once again issue import licenses to refiners during an election year.

Thailand: Production is likely to be impacted by natural and manmade events. El Niño threatens to hamper replanting efforts, reducing production numbers to 10.5 million tonnes from 12 million tonnes. The country is also facing political instability, threatening the traditional labour force.

China: China’s 2013/14 season saw a drastic fall in sugar beet production, with only a marginal increase in cane production. The result was a 3 percent YOY drop to 14.3 million tonnes of sugar produced. Expected tonnage in 2014/2015 will be further reduced to 13.4 million tonnes.

Brazil: The situation looks upbeat for the Brazilian sugar sector with the Centre/South cane harvest progressing at full steam. Dry weather in the past months allowed mills to work at full capacity, and accumulated cane crushing rose 3.7 percent above the previous season. However, crop potential may be hindered by dry weather.

EU: Healthy levels of production by EU sugar producers have sent the prices on a downward spiral with the price trend dropping a further 22 percent over the last 15 months. In most cases, EU sugar producers have seen profit margins decrease in contrast with previous years.

US: The USDA’s sugar production prospects for 2014/15 indicate that production will decline for the second year in a row. However, Rabobank predicts potential for volume to increase as expected prices could encourage more production.

Mexico: Total exports have reached 2.5 million tonnes, an increase from the last cycle of 2.2 million tonnes. However, under the current US lawsuit against Mexico sugar exports, Rabobank expects exports to the US to shrink to 1.5 tonnes while exports to the rest of the world may continue at current levels.

Australia: There is a 70 percent chance of an El Niño event around September 2014, typically bringing drier-than-average conditions and continuing the favourable conditions witnessed in the first half of the season. Depending on the intensity and duration of an El Nino event, Australian cane and sugar production could be boosted on an aggregate basis.

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