Sucden Financial - despite raising, again, its forecast for
the world sugar surplus in 2017-18 - raised hopes of an end to the slump in
sugar prices, which saw them touch a fresh 15-month low.
The commodities trading house - which in March pegged the world
sugar production surplus in 2017-18, and last month raised the estimate again
to "about" 3m tonnes – on Wednesday forecast a figure of 3.5m tonnes.
The revision reflected a small downgrade, to "almost" 180m
tonnes, in the estimate for world consumption over the season, although that
represents a rise of 2.5m tonnes year on year, an acceleration after a "temporary
2016-17 slowdown in India and China" in 2016-17.
A surplus of 3.5m tonnes in 2017-18, on an October-to-September
basis, would more than make up for the 3m-tonne world output deficit Sucden
estimated for 2016-17.
Nonetheless, the group was, despite forecasting richer sugar
supplies, tempered in its pessimism over futures after their "pronounced
weakness" since February, with New York raw sugar futures losing more than 30%
over the last four months, on a spot contract basis.
Sucden instead issued a "more rangebound" forecast for futures,
reflecting largely the impact of price swings in incentivising processors,
largely in Brazil's key Centre South region, to turn cane into ethanol, when
sugar values are low, or the sweetener itself if prices rise.
"The flat price could find more support from current levels
as any further decrease in prices would accelerate the switch to ethanol in Centre
South Brazil," the group said, adding that "such a switch could start in
Thailand and the European Union too".
"On the other hand, a price recovery would allow the sugar
mix in Centre South Brazil to reverse back higher."
Sucden pegged so-called "ethanol parity" – at which mills
have an equal incentive to produce either sugar or ethanol from cane – at about
13 cents a pound on a sugar basis.
The group added that its "more rangebound view still has a
bearish bias, however", reflecting uncertainty over the potential for Indian
and Chinese imports.
The comments came as raw sugar futures for July touched 13.36
cents a pound, the lowest for a spot contract since February last year, before
recovering some ground to stand at 13.78 cents a pound in late deals a drop of
Sucden's increase to its forecast for the world production
surplus next season came despite some downgrades to output estimates for major producing
The forecast for Australian output was trimmed by 200,000
tonnes to 4.6m tonnes, and for India by 300,000 tonnes to 24.5m tonnes, while the
Centre South production estimate was also cut by 300,000 tonnes, to 34.9m
The group noted that April and May had been "both much more
rainy than normal" in the region, with 15 days of crushing lost, compared with
a more typical eight days.
However, in its first forecast for 2018-19, it pegged Centre
South sugar output bouncing to 36.5m tonnes.