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Sugar just got a little sweeter thanks to a forecast of a tighter global deficit

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The broker StoneX has just reversed its June forecast of a tiny global sugar surplus of 0.5m tonnes in 2020-21, and now expects (an equally small) 1.3m tonne deficit. The deficit, says StoneX, is a result of lower than expected production from Thailand and Mexico among others.

 

Sugar brokers are peering ahead into a black hole - a Reuters poll (of just eleven traders) last week concluded 2020-21 would see a global surplus of 3.5m tonnes. With global sugar production in 2020-21 generally expected to be in excess of 181m tonnes, and world ending stocks in 2021 currently estimated to be anything between more than 43m tonnes to above 91m tonnes, this guessing game might feel a little surreal.

 

It will get more surreal in the coming months; greater futures’ price volatility should be expected. The raw sugar future’s price in New York has already moved quite sharply this year, from 15.78 cents per pound in mid-February to 9.21 cents in late April and almost 13 cents on Thursday. That’s a gain of around 36% since late April.

 

Demand recovery is key

 

The biggest conundrum concerns the guesstimates for how fast there might be a global economic recovery. Sugar demand, the sugar broker Czarnikow argued in May, has fallen as a result of Covid-19, the first such drop in 40 years. Covid-19 and its impact on wider economic growth has thrown the sugar market into greater confusion than for years.

 

Usually sugar consumption annually grows around 1%, the same as global population growth. Certainly many big users of sugar - such as soft drinks’ manufacturers - have seen a big drop in high street sales during the lockdowns. Coca-Cola’s second quarter revenues fell by 26% to $7.2bn partly because of a 16% fall in volume. Similar fortunes have befallen other major beverage producers.

 

Covid-19 is not the only pest

 

In the European Union (EU) sugar beet producers are battling an infestation of aphid-transmitted beet yellows virus, which may reduce sugar beet production in France and Germany by as much as a quarter this year. Sugar beet accounts for only about a fifth of global sugar production but the EU makes up 50% of that.

 

Sugar beet output in the EU has dropped for the past two seasons and sugar factories are closing. In France, the EU’s biggest beet producer, the crop this year will be no more than a whisker above 33m tonnes. The situation is so serious that the French government may well lift its ban on neocotinoid-based pesticides, and is to make available €5m to support its beet farmers.

 

The USDA forecast in May that total EU sugar production in the 2020-21 marketing year would be 17.7m tonnes, against 17.25m tonnes the previous year, despite a loss of 30,000 hectares. It also said that sugar imports would be 2.1m tonnes and exports would be 1.5m tonnes. 2020-21 will be the third successive year that domestic sugar output in the EU will fail to meet domestic consumption, said the USDA. We could be in for further price volatility.

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