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Abares, Rabobank lift sugar deficit forecasts - but cautious over price recovery


Ideas of a world sugar production deficit in 2019-20 received a double boost, with both Abares and Rabobank raising their forecasts, although both cautioned too over the weight on the market from elevated carry-in stocks.


Abares, which had in March forecast a 2019-20 world sugar output shortfall of just 0.1m tonnes, raised its estimate to 4.4m tonnes, measured by the decline in inventories expected over the season.


The revision reflected largely a weakened estimate for global sugar production in 2019-20, as starts next month, cut by 5m tonnes to 183m tonnes.


Besides cutting by 2.9m tonnes to 30.0m tonnes its forecast for Brazilian production, the official Australian commodities bureau also highlighting that Indian output “is expected to fall significantly”, undermined by a fall in cane sowings and “significant flooding” in Maharashtra.


Abares also cut by 380,000 tonnes to 4.45m tonnes its forecast for Australia’s own sugar output, saying that “below-average seasonal conditions are estimated to have reduced cane yields”.


‘Weather developments’

Separately, Rabobank raised by 1.0m tonnes to 5.2m tonnes its forecast for the 2019-20 world output deficit, “largely as a result of marking down output in India and the European Union”.


For India, the bank forecast output of 30.8m tonnes, down more than 4m tonnes year on year, also citing that “large parts of Maharashtra have suffered from flooding”, while adding that overall it was “unclear” how producing areas would recover after a slow start to monsoon.


The forecast for EU output in 2019-20 was “pared back” to 17.5m tonnes, down 500,000 tonnes year on year, saying that besides a dent from a 5% drop in sugar beet sowings, “weather developments in the July-to-September quarter now suggest that a return to average yields for the new crop is unlikely.


“For a second successive year, high summer temperatures have reduced expected beet yields in the EU.”


In fact the European Commission’s Mars agri-meteorology bureau on Monday raised by 0.7 tonnes per hectare to 72.2 tonnes per hectare its forecast for the EU’s beet yield this year, but the figure remains 3.0 tonnes per hectare behind the five-year average.


‘Anaemic import demand’

Nonetheless, Rabobank highlighted that world inventories heading into 2019-20 remain high, a factor which has maintained downward pressure on sugar prices, which in New York’s futures market last week set an 11-month low for a spot contract of 10.68 cents per pound.


“Big deliveries at recent contract expiries have undermined that export availability remains abundant, versus anaemic import demand,” the bank said.


While global inventories will erode over 2019-20, bringing the world sugar stocks-to-use ratio “back to its long-term average” by the end of the season, the decline will be “slow”.


“This points to a rather gradual transition to more constructive fundamentals over the next 12 months.”


‘Substantial buffer’

Abares lowered its forecast for average sugar prices, as measured by New York futures, in 2019-20 by 0.5 cents to 12.5 cents per pound, representing only a 0.1 cents-per-pound rise year on year.


“High carry-over stocks will provide a substantial buffer against any substantial rise in prices,” the bureau said, flagging in particular rising “pressure” on Indian and Thai mills “to offload record carryover stocks”, estimated at 22m tonnes between the two countries.


“The export of carry-over stocks presents a significant downside risk to forecasts of moderate price rises.”


Abares also flagged a threat to sugar prices further ahead from Brazil’s RenovaBio programme, which the bureau said “is attracting global investments” in the country’s sugar industry.


“These investments are expected to further increase the productivity and capacity of sugar milling for sugar and ethanol production in Brazil over the next decade.


“This will place further downward pressure on prices in the medium term.”

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