Sucres and Denrees warned of "more volatility" ahead for
sugar prices, as it forecast a return to global production surplus next season –
provided the world is spared a significant El Nino weather pattern.
Sucres and Denrees, better known as Sucden, forecast a rise
of 9.7m tonnes to 132.9m tonnes in world sugar output in 2017-18, led by a
recovery in Indian production from this season's drought-affected levels, and a
surge in European Union volumes, thanks to the elimination of quotas.
The rise in world output would far exceed the rise in
consumption, at a little over 3m tonnes, to drive the world back into an output
surplus, of some 2m tonnes, for the first time in three years.
However, rather than signalling calmer markets ahead, Sucden
said that the "potential switch from deficit to surplus primarily means more
uncertainty on the outlook and more volatility".
This prospect was especially true given the "small" nature
of next season's expected surplus, "in absolute terms as well as when compared to
the cumulated deficit of the two previous years", which the group pegged at 10m
Indeed, "given the downside risks derived from weather
uncertainties in particular, it cannot be ruled out that [the surplus] could
disappear at some point".
El Nino fears
The group flagged in particular the threat of a reappearance
of an El Nino weather pattern, which "would increase risks of a disappointing monsoon
in India," the world's second-ranked producing country, "and, more broadly, of disappointing
rains in Asia and Australia".
El Ninos are associated with depressed rainfall levels in
the likes of South East Asia and India – as well as in eastern Australia, where
the country's sugar cane is grown – besides bringing more positive crop-growing
conditions for some other areas, such as in the US Midwest.
Sucden's comments come as the Australian Bureau of
Meteorology said that there was an "increased chance" of El Niño occurring this
year, with six of the eight prediction models suggesting thresholds may be
reached by July.
The bureau said it was maintaining a "watch" status on the
weather pattern, "which means the likelihood of El Niño forming this year is
around double the average chance, at 50%".
Other factors that could set off price volatility near-term
include a potential announcement by India's government of duty free import
quotas, a move seen more likely now that elections in the key sugar-producing
state of Uttar Pradesh have been held, last weekend.
"The government may elaborate an import programme of 1.7m tonnes
to restore a suitable level of stocks of two months' consumption by
end-September," ", said Emmanuel Jayet, Sucden's head of research, if flagging that
such scheme may be phased to limit its effects on local and world markets.
In 2017-18, India was forecast seeing sugar output recover
by some 5.2m tonnes to 24.8m tonnes, thanks to the improved water availability
for cane crops in many areas.
The EU was also seen poised for a large rise in output next
season, of 2.8m tonnes to 18.4m tonnes, following the elimination of beet
quotas seen as enough to back exports of 2.5m tonnes, a rise of more than 1m
tonnes year on year.
Sugar output in Brazil's key Centre South region next season
was pegged at 35.2m tonnes, a drop of 300,000 tonnes year on year, reflecting
expectations of a decline in the region's cane output, and a limited ability of
mills to raise further their production of the sweetener as opposed to ethanol.
"After two years of low rates of renovation, the average age
of cane will be the highest since the dismal 2011-12 season," Mr Jayet said.
"This certainly warrants caution on agricultural yields."