In the last quarter of this year, the market got excited over the prospect of a global deficit in 2018/19, driving the sugar price from the low of 9.91 cents/lb in August to some 14 cents. The analyst Datagro forecasted a deficit of over 700, 000 tonnes which was backed by the analyst FO Licht, who revised its earlier forecast of some 5 million tonnes (mlt) surplus to also a deficit of over 700,000 tonnes. This was followed by reports from India by Bloomberg suggesting that the deficit on 700,000 tonnes may be on the conservative side, as India’s 2018/19 output may fall to 28.9 mlt (from the revised 34.2 mlt) due to combination of dry weather and widespread pest attacks, thereby propelling the deficit to 5.8 mlt. But, latest forecasts by the International Sugar Organization (ISO) and US Department of Agriculture (USDA) indicate a surplus in 2018/19 of 2.2 mlt and 9 mlt, respectively, with USDA discounting impact of pest infestation in India. Rabobank in its latest outlook also forecasts a global surplus of 1.2 mlt for 2018/19.
With global stocks, according to USDA forecast to rise to 53 mlt raw value, there should be a significant restraint on price recovery in the foreseeable future. Over the next year, Rabobank maintains that prices will remain practically as they are at 13.7, 13.7, 14.0 and 14.3 cents/lb over the four quarters in 2019. Few would quibble at this prediction barring any adverse impact on output from the weather.
Against this backdrop, the major sugar exporting countries Brazil and Australia have launched formal complaints at the World Trade Organization (WTO) against China and India, respectively, irked by their supportive policies for their domestic producers which have invariably hurt theirs. In late May, Brazil launched a formal complaint against China for its prohibitive import tariffs introduced in 2017 which has resulted in Brazil’s exports to the country fall sharply from having a share of 71% in its market to 8%. In mid-November, Australia lodged a counter-notification with the WTO against India over subsidies to its sugar industry which has helped it expand sugar production and contributed to the current global surplus which has seen price fall below UScents10/lb and has adversely affected Australia’s sugar industry. However, according to recent press reports, in the hope of securing an expansive trade deal with India, Australia is softening its stand at the WTO, shelving a second notification which the powerful Australian Sugar Milling Council (ASMC) wanted to bring. But it has to be said that it is wishful thinking on the part of the
Bullish/bearish scenarios on sugar price development in 2019
Australian government that India will change its sugar policy in the short term. India will ride out the cumbersome process as long as possible while its newly implemented biofuels policy which allows the use of cane juice as feedstock begins to take hold. This will probably help check surplus when some new 150 plants come on stream. Cane farmers lobby in India is a very effective one. Most of the politicians’ journey to the Indian parliament begins from the sector. Indian politicians are not going to commit political suicide to relent their support to the cane sector to appease the outcry against their policy.
Policy makers with the support of politicians navigated the EU sugar industry from one that was simply not globally competitive to one that is now. Even though the process was painful, with significant rationalisation, the sugar industry is now market-driven and capable of withstanding the attendant volatility in the market place. But the announcement last April of a ban on the use of neonicotinoids in the EU will probably reverse these advances in a single move. The neonicotinoids—imidacloprid, clothianidin, and thiamethoxam are used to coat seeds. They are effective against insect pests including aphids which transmit yellow virus. With no suitable alternatives, beet growers in regions with relatively mild winters face yield reductions of between 10 and 50%, in the immediate future. While some beet sugar producing countries have granted emergency authorisation on the use of neonics, with the exception of Poland, all the rest (Finland, Hungary, Lithuania and Romania) are modest producers. While it is too early predict, it is apparent that beet growers facing yield reductions from virus infections and insect pest damage will switch to other crops. The contraction of the EU beet sugar looks imminent. This maybe a relief to the standalone refiners in the Gulf states who are having to compete with EU producers in the white sugar market where premiums have fallen.