As 2017 draws to a close, international sugar prices are still under pressure amid higher than expected production and weaker demand from the main consumers around the globe.
The white commodity futures delivery have fallen almost 18% since the beginning of 2017, data compiled by Nasdaq’s website reveals.
International sugar prices stand at 14 US cents a pound, having started the year at almost 19 cents per pound. Meanwhile, 2017/18 remains on track for another year of surplus of international crops.
Analysts polled by Daily News Egypt said that an expected surplus in the next season is weighing on the outlook of futures prices, with investors likely to start a sell-off streak to avoid losses.
About 80% of the world’s sugar comes from sugarcane, a perennial grass that is grown in tropical and subtropical areas.
Worldwide, 70 countries produce sugar from sugarcane, 40 from sugar beets, and 10 from both.
The top producers are Brazil, India, China, Thailand, and Pakistan.
Price drivers for the commodity, which is also called white gold, are global sugar stocks, global consumption outlook, weather conditions, and governmental regulations.
Brazilian, Indian production surplus weighs
One of the top producers around the globe, Brazil’s output surplus is expected to weigh further on prices next season.
“If you want to track the outlook of sugar prices, you should take into consideration the outlook of Brazilian output. Production there is on the rise, and this could serve as a drag for the prices in the next season,” said John Philips, a senior soft commodities analyst at Agrimoney Research.
Earlier in December, the official Brazilian crop bureau updated estimates made four months ago, increasing its expectation by 74,000 tonnes to 39.46 million tonnes for overall domestic sugar output in 2017/18.
“These data indicate a higher supply overhang in the sugar market which will keep sugar prices under pressure,” Philips added.
“At such times, sugar companies will have to live with lower profitability. This is the right time for these companies to use the last two years’ high profitability to hedge and sustain growth,” he concluded.
Sugar prices have been on the rise in the past two years amid weak production and higher than expected demand.
By the end of 2016, the prices of sugar futures were hovering around their highest level in seven years.
Meanwhile, India the second largest producer of sugar in the world, is expected to crush 249m tonnes of sugarcane in the 2017/18 marketing year (October-September), as compared to 203m tonnes in the previous year.
According to the Indian Sugar Mills Association (ISMA), sugar production data for the current sugar season until the middle of December 2017 shows a 30% increase in sugar production at 6.94m tonnes.
Bearish outlook for next season
Commodities research houses are expecting bad times for sugar prices in 2018.
Commerzbank said in a recent research note that raw sugar prices’ quarter-average are forecasted to fall by 0.5 cents a pound, although the estimate for late-2018 values was kept at 15 cents a pound, compared with a 14.59 cents-a-pound trading price for October 2018 futures.
“If the shift towards ethanol is maintained by Brazilian sugar mills, the proportion of sugar remaining low for any prolonged period, this is likely to shore up the price,” the bank said, while noting the small world output surplus pencilled in by some commentators for 2018/19, and forecast depreciation of the Brazilian real, as headwinds to gains.
Meanwhile, another research note by Rabobank said that international crop year remains on track for a surplus in the next season.
Rabobank commodity analyst, Georgia Twomey, said in a research note the expected surplus had caused sentiment in the market to deteriorate and raw sugar futures to take an abrupt tumble, which was also likely to have been prompted by the strength of the US dollar and comparative weakness of the Brazilian real.
Given the decline in the market and the current outlook, Twomey said pricing pressure was expected to be heavy in the near-term if the market returned close to 15 cents a pound.
Still, this season, sugar production is up 2.3% over last year, according to the latest data.
Competition from rival sweeteners
To add to the problem of higher supply and weaker demand, competition from rival sweeteners like isoglucose is expected to serve as another drag for the white commodity’s futures in the next period.
A recent European Commission report said, “in an environment of higher production, combined with decreasing consumption and increased competition from isoglucose, it is difficult to see how sugar prices can remain substantially above €400 a tonne,”.
Sugar production in 2017/18 is expected to jump 22% from last season to 20.5m tonnes, but will fall back gradually to reach 18.9m tonnes in 2030/31, the European Commission added.
“This is expected to lead to some market adjustments, with production reductions in some less productive areas,” the report said.
Sugar demand was expected to be curbed by health concerns, with consumption forecast to decline to 17.5m tonnes in 2030/31, down 5% from this year, the commission said.
Sugar would also lose market share to isoglucose, a sweetener made from maize and wheat starch that had been subject to a 720,000 tonne production cap under the quota regime.
Isoglucose consumption was projected to rise to 1.8m tonnes in 2030 from 0.8m in 2017/18, increasing its share of caloric sweetener consumption in the EU to 9% from 4%, the commission estimated.
Isoglucose is more widely used in countries like the United States, Mexico, and China.
European Union sugar exports were seen dropping to 2.6m tonnes by 2030/31 from 3m expected this season.
But the EU would maintain its position as a net exporter this year, with lower European prices curbing imports that would remain stable over the coming period, the report showed.
The projections were on the basis of a 28-country EU including the UK, since the terms of the planned British exit from the bloc were yet to be decided, the commission said.
