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ANALYSIS: Sugar price is likely to rise further given supply uncertainties and demand pick-up


The black hole of sugar forecasting just got a little murkier. The International Sugar Organization said this week it expects a global sugar deficit during rhe 2020-21 season of 724,000 tonnes. For 2019-20 it forecasts a deficit of 136,000 tonnes - a drop in the bucket, and a sharp reduction from its previous 9.3m tonnes deficit.


In January this year a Reuters poll (of 12 traders) anticipated a global sugar deficit for 2020-21 of 1.15m tonnes. By August, Covid-19 had thrown the world into a tizzy. For sugar that meant a similar Reuters poll (this time of just eleven traders) concluded 2020-21 would see a global surplus of 3.5m tonnes.


In January’s pre-Covid-repercussion days the Reuters poll put the New York sugar futures’ price by the end of 2020 at 15 cents per pound. On 12 February the price reached 15.78 cents per pound - the peak for this year so far. It then proceeded to collapse to 9.21 cents per pound by 22 April, the day that perhaps marked a trough for all commodity prices this year. Today the same futures’ contract is 12.31 cents per pound.


A collapse of 41% followed by a recovery of 33% - sugar’s price volatility this year has been astonishing. More volatility, at a higher level than today, is expected for the rest of this year.


Precarious balance


In the absence of anything more reliable, the ISO - by definition a cautious body - gives us the best available overall picture. Consumption in 2019-20 it says has been hit (thanks to Covid-19) during 2019-20 but will rebound strongly by 2.6% during the October-September 2020-21 year.


That’s quite a leap, more than double what is generally assumed to be the rate of annual global consumption growth for sugar. The judgement is fine - 2020-21 will see global consumption at 174.19m tonnes, production at 173.46m tonnes (up by 2.3% year-on-year). It’s a very fine balance. By the end of 2021 world sugar stocks will be 95.654m tonnes, according to the ISO, substantially bigger than independent forecasts made earlier this year - but those stocks are also deceptive, as an uknown quantity will be deteriorating.


Recovery surprises


How the global recovery from the Covid-19-induced economic slump shapes up will have a profound effect on all commodities, not least sugar.


In truth, the jury is out on how the world’s biggest sugar producers - Brazil and India regularly tussle for top position - will emerge from the worldwide recession. Much depends on how, when, if the world calms down and accepts that Covid-19 is here to stay, rather like influenza viruses.


For India, this year’s monsoon has been excellent, which will benefit the upcoming October ratoon crop and the succeeding crop into 2021; crushing season starts in India in October. India’s sugar harvest relies on migrant workers travelling acrosss the nation to cut cane. India has almost 4m Covid-19 infections, has spent much of the year in lockdown, fear of Covid-19 is still high. This year’s crush will certainly get off to a slow start, as Indian migrant workers are pulled by the need to earn money and the push of Covid-19 anxieties.


As for Brazil, with its 4m Covid-19 cases, the same level of anxiety can be assumed. While the sugarcane harvest is more mechanised than in India, the harvest still requires considerable migrant labour. An additional factor of course is the country’s fuel-ethanol (based on sugar) demand. The USDA in May put 54% of sugar in 2020-21 being used to produce ethanol, 14% higher year-on-year.


All in all the sugar price should easily recover to 15 cents per pound this year - meaning another 21% to the upside.

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