The rally in sugar prices may not be over yet, the International Sugar Organization said, as it hiked its estimate of the world sugar production deficit, and pegged supplies at their tightest in eight years.
The intergovernmental group raised by 3.32m tonnes to 9.44m tonnes its forecast for the global sugar output deficit in 2019-20, on an October-to-September basis, “the biggest [shortfall] in 11 years”.
The revision reflected a reduced production estimate, cut by 3.74m tonnes to 166.7m tonnes, thanks to the weather setbacks to cane crops in India and Thailand.
The supply shortfall will see world sugar stocks shrink by a rate “nearly matching the record drawdown in stocks seen in 2008-09”, the ISO said.
‘Tightest since 2011-12’
The ISO noted the boost to sugar price prospects from the change in dynamics, saying that a rise of nearly 20% in world sugar market values in the past three months was “in line with fundamental change”.
Furthermore, it signalled the potential for further price gains, noting that “all market indicators – the production-consumption deficit, a trade deficit, strengthening white premium and hedge fund long position – support a continuation of this trend”.
Indeed, calculating this season’s stocks-to-use ratio - a key pricing metric - at 48.0%, down 5.8 points year on year, it said that this “would be the lowest ratio since 2011-12.
“The average price during that season was around 18 cents a pound.”
The best-traded New York May raw sugar futures contract was trading at 14.20 cents a pound on Friday, flat on the day.
Brazil vs India
The organisation slashed its forecast for Thai sugar production in 2019-20 by 3.15m tonnes to 9.00m tonnes, after a season in which cane output has been cut by drought, as well as a loss in land to cassava.
Thai cane area for 2019-20 tumbled by 15% year on year, analysis group LMC International estimated in a briefing two weeks ago.
For India, the ISO downgraded its output forecast by 1.50m tonnes to 26.80m tonnes, after a season marked by drought followed by monsoon rains in the major growing state of Maharashtra.
Output estimates for the likes of the European Union, Indonesia, Mexico, Pakistan and the US received smaller downgrades, although for Brazil, the output forecast was hiked by 3.0m tonnes to 31.95m tonnes.
Many commentators have raised expectations for Brazilian sugar output for the country’s next cane crushing season, as starts in April, with higher prices seen encouraging mills to turn more crop into sweetener, rather than ethanol.
The performance would return Brazil to top rank in sugar producers in 2019-20, with the country’s output last season (on an October-to-September basis) of 28.40m tonnes falling behind India’s 33.16m-tonne result, on ISO estimates.