Sugar prices look set to lose more of their premium over
prices of corn-based sweeteners, Czarnikow said, signalling limited room for grain
processors such as Cargill to lift prices in imminent talks.
Makers of high fructose corn syrup, a group which also
includes the likes of Archer Daniels Midland and Tate & Lyle, last year achieved
strong rises in prices, of some 10-15%, in annual talks with customers, such as
drinks giants PepsiCo and Coca-Cola.
However, as the companies prepare for this year's round of
talks, for 2013 prices, set to begin later this month, Czarnikow flagged the
falling price of sugar compared with high fructose corn syrup (HFCS), whose
manufacturing costs are being underpinned by elevated corn prices.
In contrast, sugar prices have been undermined by a recovery
in cane production in the likes of Australia, Brazil and China, besides sugar beet
in Russia, leaving the world with a production surplus of 7.1m tonnes in
2012-13, on Czarnikow estimates.
'Prices may converge'
"Since 2008 high sugar and low corn prices have driven
industrial consumers towards corn sweeteners," the merchant said, flagging a
rise from historic levels of 3.2 cents a pound in 2007 to 15 cents a pound last
year in the premium of sugar-based sweeteners over corn-based ones.
"It has since fallen to around 7.6 cents a pound currently."
And it stands to fall further, including in the Mexican market
which is key to US HFCS producers, which have used exports south to offset the
impact of a slowdown in domestic use of corn sweeteners as health-conscious consumers
switch from fizzy drinks to fruit juices and water.
"In Mexico, the imminent start of the harvest, which is
expected to yield the biggest crop in the last four years, could see prices
converge," Czarnikow said.
US Department of Agriculture staff this month estimated a
bigger and better quality Mexican cane harvest fostering a 4.1% rise to 5.25m
tonnes in Mexico's sugar output in 2012-13.
In China too, where corn-based products account for
one-third of sweetener demand, as measured by calorific value, sugar may regain
market share if its values fall as market dynamics suggest.
"With a bigger cane and beet crop anticipated in 2012-13,
sugar prices should fall," Czarnikow said.
"If sugar prices fall there is the potential for a rise in
sugar demand at the expense of corn sweeteners," with improved domestic
production also set to foster a halving to 1.5m tonnes in China's sugar imports.