Australian officials cut expectations for world sugar
production in 2014-15, but not by enough to follow other observers and foresee
an output deficit – leading to a downbeat price forecast.
The Abares crop bureau cut by 2.8m tonnes to 179.9m tonnes
its forecast for world sugar output in 2014-15, starting in October, ditching
expectations of a small rise in production.
The downgrade reflected in the main a cut to 38.0m tonnes in
the estimate for Brazilian output, i a 1.7m tonne drop year on year, according
to the bureau, which had it its last forecasts, in March, forecast a rise in
volumes in the top producing country.
"The forecast fall largely reflects assumed lower sugar
yields as a drought of in Brazil's Centre South region," Abares said in a report.
Sugar vs ethanol
Its forecast also assumed a small drop of 1 point to 44%, in
the proportion of Brazilian cane turned into sugar rather than ethanol, with
the biofuel in its anhydrous form favoured by government proposals to lift by 2.5
points to 27.5% its blend rate into gasoline from the start of next month, the
However, the estimated tipping point between ethanol and sugar
production from cane does vary from commentator, and indeed will alter between
mills, depending on factors such as their marketing regimes and cane harvesting
Brazilian institute Cepea in fact estimates that last week,
making crystal sugar (a domestically-popular type between raw and white grades)
"remunerated 25% more than anhydrous ethanol" in São Paulo, the top cane-growing
Abares also scrapped forecasts for a rise in output in
Thailand, the second-ranked sugar exporting country, where production was seen
falling some 700,000 tonnes to 10.9m tonnes, reflecting a "5% fall in cane
planting in response to forecast lower world sugar prices".
And for China, a major importer, the bureau also ditched
ideas of a rise in production, seeing output down some 4% at 14m tonnes, "in response
to lower Chinese domestic sugar prices and assumed lower sugar yields.
"Chinese farmers are expected to move from cane and sugar
beet production to alternative crops, such as cassava, vegetables and rice,
because of expected better returns."
However, Abares stood by expectations of growing sugar output
in Mexico and the US, and raised its estimate for domestic production by 57,000
tonnes to 4.60m tonnes.
This upgraded forecast, representing an increase in output
of 220,000 tonnes year on year, was down to ideas of a 1.6% rise in harvested area
and a recovery in yield from levels hurt in 2013-14 by flooding.
In fact, Australian cane growers should see a rise of 7% to
$38 a tonne in returns, assuming an improved yield, Abares said.
Surplus vs deficit
The revisions left world production above consumption in
2014-15 on Abares forecasts, enough to fuel a 400,000-tonne increase to 80.5m
tonnes in world stocks at the close of 2014-15.
While lower than the surplus of 2.2m tonnes the bureau had previously
foreseen, it is more upbeat than expectations from many other observers, such
as Platts Kingsman, which last month forecast a 239,000 deficit in 2014-15, on
an October-to-September basis.
The International Sugar Organization foresees "neatly
balanced global supply and demand".
On prices, Abares raised its outlook for average benchmark
New York futures in 2014-15 by 0.8 cents pound to 16.0 cents a pound, although
this remained below the price that investors are factoring in.
Many other commentators also have far higher price expectations, with Societe Generale, for instance, foreseeing raw sugar futures averaging 18.6 cents a pound this year and 18.3 cents a pound in calendar 2015.
Raw sugar futures for October 2014 delivery were on Tuesday trading at 17.93 cent
a pound, with prices rising to 19.16 cents a pound for the October 2015 contract.
Abares said that its forecast price would represent "the
lowest in even years, but remain well above the average of 11 cents a pound for
the 10 years to 2007-08".