Czarnikow issued a caution to bears on sugar prices even as,
citing improved estimates for Brazilian and Indian output it raised its
estimate for the world surplus of the sweetener.
The commodities house raised by 1.3m tonnes to 9.1m tonnes
its forecast for the 2012-13 production surplus, reflecting in part a bigger
forecast for world output.
The group lifted to 34.1m tonnes its estimate for production
in Brazil's key Centre South region, responsible for nearly 90% of the national
With prospects in India, the second-ranked producing
country, improved by "better-than-expected yields", world output looked like
reaching 184.2m tonnes, up 3.6m tonnes from the group's December forecast, despite
Australian and South African results coming in "marginally short" of forecasts.
Meanwhile, Czarnikow lifted its estimate for consumption by 1.8m
tonnes to 174.1m tonnes, reflecting a range of signals, including record
imports in the second half of 2012 and early this year, a factor which "appears
inconsistent with a slow consumption environment".
Indeed, Czarnikow also flagged a physical market which was
trading at least at parity with futures, and in a mild backwardation, providing
an incentive for delivery up front.
"The physical market is quite clearly reducing the incentive
to hold stocks, and pointing towards increased consumer activity."
However, this included increased consumption in "much less
visible" markets, a factor which prompted it to double to 1.0m tonnes its
allowance for sugar put down to unrecorded disappearance, "reflecting the
unknowns that we have still to identify".
Nonetheless, Czarnikow highlighted a potential hit to
production from lower prices, down more than one-quarter year on year, at a time
when world output growth was already slowing.
While production in the likes of Brazil has improved, "the
2012-13 cycle has nonetheless seen [world] output stagnating, with global production
growing at around 2.9% compared with 6.4% and 7.8% in the previous two seasons".
While successive seasons of growing production "leave the
market better placed to respond to emerging demand", the "surplus itself has in
part been addressed by the fall in price".
"With global sugar prices already at levels below cane
prices in many producing and exporting countries it will be interesting to see
how production responds in the next cycle."