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Sugar prices face 'more volatility' - especially if El Nino strikes
By Mike Verdin - Published 14/03/2017

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.

'More uncertainty'

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 tonnes.

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%".

Indian imports?

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.

'Warrants caution'

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."

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