Rabobank: Fourth Consecutive Global Sugar Surplus Expected

11 Oct 2013 --- According to a new report from Rabobank, preliminary projection of the global sugar supply/demand balance for 2013/14 points to a fourth consecutive global surplus of 5.4 million tonnes (raw value). Rising global stocks over the 2013/14 international crop year and an increasing global stocks-to-consumption ratio is set to limit scope for world prices entering 2014.

Currency markets, too, have been volatile in Q3 2013; largely as a result of expected action from the US Federal Reserve to phase out quantitative easing and causing a knock-on effect on dollar-denominated commodity prices.

“The predicted global sugar surplus is considerably smaller than the 9.9 million tonnes estimated for 2012/13”, commented Rabobank analyst, Andy Duff. “It implies a further build-up of global stocks during 2013/14 and a further increase in the global stocks-to-consumption ratio. Together, these factors will mean prices will remain under pressure”.

Regionally, uncertainty regarding the level of sugar production in Central/South Brazil has implications for the global surplus, particularly for the availability of exportable sugar in Q1/Q2 2014. Wet weather in October/November, and/or an early end to the harvest season, could prompt a downward revision of expectations for sugar production and export availability.

Elsewhere, heavy rains have reportedly slowed the progress of Russia’s beet harvest, putting a question mark over production forecasts and 2013/14 import requirement. Such uncertainty may justify a modest risk premium with respect to 2014 prices. Unless the fundamental picture changes drastically in the coming months, any upside for world raw sugar prices appears limited.

In the EU, the expected liberalisation of the sugar market in 2017 will see quotas for sugar production lifted. While EU sugar producers are protected by import barriers, and sugar production is expected to increase, it will nevertheless induce competition between producers and prices are predicted to remain high.

By comparison, low sugar prices remain in the US market. Rabobank expects US sugar production in 2013/14 to be 7.7 million tonnes; 4.7 percent lower than last year’s production but the second highest production since 2003/04. Consumption is presumed to increase marginally, and final surplus is expected to be at a historical level of 2 million tonnes.

Exchange rate volatility will influence expectations of sugar exports. In India, the combination of a gradually rising world sugar price and a weak rupee could boost exports in 2013/14. In Australia, too, continued currency weakness in the Australian dollar is expected to continue to buffer the returns of cane growers and millers alike. "Any abrupt and sustained movements in the value of the US dollar would likely have a knock-on effect on international sugar prices”, said Duff.

Source: Rabobank