Sugar investors need to gen up on French beet production, and
German sugar yields.
The European Union, for years of a relative irrelevance to
world sugar prices, is to become one of the "two main drivers" of values,
matched only by Brazil, broker Marex Spectron said.
The transformation in Europe's role reflects its change from
a bloc with a very regulated sugar market - down to minimum beet prices, and strict
trade controls set by the World Trade Organization - to one far more laissez
faire, with the abolition in 2017 of production quotas.
"The EU is the one major market which has absolutely no influence
on the world market since 2008 but which, we think, is going to become the most
important factor in the world market," London-based Marex said.
Range of options
The thinking reflects the greater freedom among EU farmers
under the liberalised regime to raise or lower production of beet which, as an
annual crop, should see its sowings prove more volatile than can, a perennial,
in response to changes in market prices and growers' profitability prospects.
"If the world price is too low, EU farmers can respond by
sowing the minimum, and turning the EU into a substantial importer [of sugar],"
"If world prices are high enough to incentivise EU farmers
to plant the maximum, the EU could again become an annual exporter."
The potential range in trade volumes could be huge, with the
bloc - whose own consumption is fairly stable at about 16.5m tonnes - capable
of producing 21m tonnes of sugar at full stretch or perhaps 14m tonnes at a
"The EU could be an importer of up to 2.5m tonnes, or an
exporter of up to 4.5m tonnes."
'Two huge swing
Only Brazil's key Centre South cane producing region offers
a comparable range, of 7m tonnes, in theoretical sugar production, given the
ability of mills to switch from turning cane into the sweetener or ethanol,
"From early 2016 there will be two huge swing factors at
work in the sugar market – one based on the EU cost of production, and the other
on the Centre South Brazil cost of production - and both will be capable of
very fast reaction [to changes in sugar prices]."
"All in all, the EU, far from being the passive victim of
the world market, will become one of the two main drivers of that market."
The broker estimated EU beet growers' production cost - ie
the level at which farmers will receive a profit incentive to grow the crop –
at about 19-20 cents a pound in sugar terms, with Centre South Brazil's seen at
17-18 cents a pound.
New season begins
The comments come as Brazil's Centre South is beginning its
2014-15 production season, with mills emerging from seasonal downtime, which
typically lasts from around December to March, usually rainy period – although not
As of Monday, 147 mills had restarted operations, slightly below
the 155 starting by April 14 last year, Unica, the Brazilian cane industry group,
said on Tuesday.
This represented a turnaround on the end-March situation,
when the 22 mills running was higher than the 15 a year before.
Unica said it would on April 23 release its first full
estimate for the 2014-15 sugar cane harvest in the Centre South.