Rabobank raised its forecast for the world sugar output
surplus in the newly-started season, thanks largely to improved estimates for
Thailand and for Europe – where it backed ideas of weaker prices to come.
The bank raised to 4.5m tonnes, from 2.7m tonnes, its
estimate for the world production surplus in 2017-18, which began at the start
of this month.
The revision reflected in part improved expectations for
output in Brazil, the world's top grower, where the bank quoted an assessment
from Unica, the cane industry group, that output in the key Centre South region
is "now projected to exceed last season's 35.6m tonnes".
Initially, Unica had forecast output of 35.2m tonnes from the
Centre South, which is responsible for more than 90% of Brazil's total sugar
However, Rabobank also raised by 800,000 tonnes to 12.6m
tonnes its forecast for Thai sugar output in 2017-18, noting an upgrade of 7m
tonnes to 110m tonnes in the country's official estimate for its cane crush
during the season.
Thailand now looked like producing an exportable surplus of
8.9m tonnes of raw sugar.
The forecast for European Union sugar output this season was
raised by 900,000 tonnes to 20.5m tonnes, up an "astonishing" 3.8m tonnes year
The increase will be led by growth of more than 2m tonnes in
output in both France and Germany, to 5.8m tonnes and 4.5m tonnes respectively.
Given the size of the increase, "we may expect a significant
impact to the market, both inside and outside the EU," said Andy Duff, Rabobank
global strategist, sugar.
'Price drop expected'
Indeed, the bank forecast some erosion in the premium of EU white
sugar prices of more than 50% to futures, according to latest data from the
European Commission, which show white sugar priced in July at E501 a tonne.
"Going forward" the premium of EU sugar prices to futures
will move within a "narrower range", Rabobank said.
Considering the "glut" of EU sugar, "which at current prices
does not seem attractive to export, a further drop in the EU average price in the
coming months can be expected", Mr Duff said, comments in line with those last
week from US Department of Agriculture staff.
The EU will indeed end up raising its exports, "as the
additional supply will simply force producers to export more".
'Little risk premium'
The bank, on world prices, said that current values appear
to include "little in the way of risk premium", given that a world production surplus
of 4.5m tones was "not large".
However, it also noted that events such as hurricane damage
in Cuba, and another round of Indian imports, had not injected "a little
adrenaline into the market", as might have been expected.
"Whatever potential these developments had to spark the market
may well have been offset by expectations of higher exports from Pakistan and
diminished Chinese imports," Mr Duff said.