The global sugar market faces a second successive production deficit next season, but not as big a shortfall as some investors believe, Green Pool said, while proving relatively upbeat over Thai output in 2019-20 too.
The Australia-based analysis group, in its first estimates for 2020-21, forecast a world sugar production deficit of 1.01m tonnes.
While representing a second successive shortfall - in line with a market rule of thumb of “three surplus years followed by two years of deficit” – the Green Pool estimate is well behind expectations from some other commentators, with the international Sugar Organization, for instance, seeing a 3.5m-tonne gap.
Green Pool, acknowledging its forecast might “disappoint some of the market bulls”, termed India as “the main contributor to our forecast of only a very small deficit in 2020-21”, foreseeing the country’s output “bouncing back strongly from this harvest’s problems” to hit 32m tonnes.
“After all, unless there is a monsoon failure or some crop disease issue, it seems that farmers have voted with their feet for the best returning crop in India – sugarcane,” said Green Pool, pegging the country’s weather-hit 2019-20 output at 28.3m tonnes.
The group also signalled the potential for an even smaller world 2020-21 deficit – and even a surplus - should prices incentivise extra production beyond the 187.22m-tonne figure expected.
“Higher prices could easily take the balance into surplus via more sugar being produced” in Brazil’s Centre South region, where mills can readily, in response to market signals, alter the proportion of cane processed into sweetener rather than ethanol.
Green Pool flagged too the prospect of higher prices in luring out inventories which have been kept in store in expectation of the sugar market rally.
“Global stocks remain plentiful but may only emerge into the market at higher prices,” the group said, pegging world sugar stocks at the close of 2020-21 at the equivalent of 47.6% of use, down 1.0 percentage point year on year, but still at a historically-elevated level.
‘Outlook continues to be bullish’
The comments come amid a price recovery which has driven New York raw sugar futures above 15.00 cents a pound for the first time in two years on a spot contract basis, fuelled by mounting expectations for world sugar output deficits both this season and in 2020-21.
“The fundamental outlook continues to be bullish as upgrades on the coming year’s supply-demand deficit keep showing increases,” Sucden Financial said on Monday.
Commerzbank, said that “there are plenty of good reasons for higher prices”, noting expectations of lower Indian output in 2019-20, when “sugar production in Thailand is likely to hit a nine-year low and in the EU to remain close to the previous year’s low level”.
Marex Spectron said, regarding the price outlook, that “a lot will depend on what turns out to be the truth about the Thai crop – will it be 10m tonnes or 11m-12m - and to a lesser extent the Indian crop, 26m tonnes or 28m.
“The extraordinary premium for Thai raws, of 1.60-1.65 cents per pound, shows that traders are scared of a possible Thai crop disaster” in the second-ranked sugar exporting country, after Brazil.
‘A little hard to believe’
Green Pool trimmed its forecast for 2019-20 Thai sugar output by 300,000 tonnes, but to a figure of 12.25m tonnes which remains above many other market estimates.
“We are finding it a little hard to believe some of the numbers circulating the market – of between 80m-100m tonnes of cane, especially the lower end,” the group said, flagging a reasonbly rapid pace of cane harvesting as supporting its case.
“With smaller crops, mills will usually slow the harvest to maximise sugar content of the cane.”
For India, the group suggested that “some analysts are overstating both the drought and flood damage in Maharashtra, while we have been told that some of the cane harvested for cattle feed in June-July may well be harvested at the end of the 2019-20 harvest to make sugar”.
“The main areas where our numbers are higher than some estimates floating around are in Thailand and India,” Green Pool added.
Nonetheless, for 2019-20, it widened its forecast for the world production deficit by 1.33m tonnes to 6.63m tonnes, reflecting the Thai downgrade, plus cuts to expectations for Australian, Chinese, Mexican and US production too.