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ANALYSIS: Has the sugar price rally got further to run?


Given that the International Sugar Organization (ISO) forecast last June a global sugar surplus of 1.83m tonnes for the 2018-19 season, a rise of almost 1.2m tonnes over its previous estimate, it is perhaps no surprise that the ISO’s executive director, José Orive, said recently that the ISO is “encouraging countries like Iran, Bangladesh, Myanmar, Indonesia and others to import sugar from India”.


India has sugar bursting from its silos.


However, in November the organisation said that there could be a “world statistical deficit” in 2019-20 of 6.1m tonnes, although adding that “considerable stocks still overhang the market”.


With consumption growing by a meagre 1.3% the world in 2019-20 looks as though it will still be awash with sugar.


Thailand’s drought impact


Yet New York’s March raw sugar futures contract in has been hovering around 15 cents a pound (and reached 15.46 cents on Tuesday), a significant rally from the 10.18-13.4 cents trading range of 2019.


This cautiously bullish move is explicable largely because of an unusually severe drought in Thailand, where cane crushing could end in early March (against a more normal early May).


Thai cane farmers are also reported to be shifting to alternative crops, because of decade-low cane prices, and that reduction in acreage could be a further and longer-lasting prop for higher prices.


Although Thailand produced 14.57m tonnes of sugar last season, the country’s total output this season could be sub-10m tonnes.


According to COFCO, the Chinese commodity trader, the lower Thai output is likely to linger, limiting exports from the world’s second-biggest exporter.


Forecasts of a world sugar production deficit of more than 5m tonnes this season are now widespread, underpinning higher prices.


Sugar vs ethanol


But before we throw our hats in the air and cheer, some countervailing winds from Brazil.


How the 2019-20 global sugar balance – on an October-to-September basis - eventually pans out will be largely in the hands of Brazil’s sugar farmers and ethanol producers.


Is the market sending them sufficient price signals to produce more sugar, less ethanol?


The dip in demand for crude oil as a result of the negative impact of the coronavirus should, if reflected in the ethanol market too, encourage Brazil’s cane crushers to produce more sugar this season.


Could that increased sugar production cap any price push higher, or will it be felt too late to dent the pent-up bullishness?


Amid this uncertainty, it’s difficult to see the price pushing a lot higher than current levels without significant fresh fundamental news.

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