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Sugar futures - will 2015 bring an end to their losing streak?

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Raw sugar futures are on course to record a fourth successive year of decline in 2014, feeling pressure from the weight of world supplies.

Although commentators differ over whether 2014-15 will see a global production deficit (with the argument muddied by the use by some of an April-to-March marketing year, and others of an October-to-September season), four previous years of surplus have augmented world inventories.

Indeed, stocks had reached 76.6m tonnes as of the end of 2015-16, according to the International Sugar Organization, equivalent to 42.8% of world annual consumption.

But will lower price levels finally lead to a meaningful response, in terms of depressing production, paving the way for a price revival?

Commerzbank

"There is currently no consensus as to whether global production in 2014-15 will still be sufficient to cover the growing demand.

Commerzbank sugar price forecasts, 2015

Q1: 17.0 cents a pound

Q2: 18.0 cents a pound

Q3: 19.0 cents a pound

Q4: 20.0 cents a pound

Prices: quarter average, front Ice futures contract

"Next year's sugar cane harvest in Brazil is expected to come in at levels similar to last year's if the weather holds up now. Production is also seen to rise in several other countries that were recently affected by bad weather, but production is expected to fall steeply in the EU after this year's record harvest.

"We assume that sugar prices will rise as soon as market participants become more aware of the prospect of increasing scarcity.

"Also, low prices are making investments in the maintenance of sugar cane plantations less advantageous, and this weighs on the medium-term production outlook."

Czarnikow

"We are not seeing any response to low prices in global sugar output. In fact, some regions such as the EU look set to have record crops in 2014-15.

"This suggests that the falling world market price to date has not been severe enough to change farmer planting decisions.

"Part of the problem is that many growers have been sheltered from the price signal by government policy. Consequently in many regions it is the cane millers who are being squeezed the hardest.

"Given the 21m tonnes, raw value, rebuilding of global sugar stocks in the last three seasons the market remains well-supplied. This is likely to be reflected in prices in the first few months of 2015."

J Ganes Consulting

"China still remains a pivotal factor.

"The Chinese government is trying to take measures to stimulate the economy after seeing growth stagnate, and this should help sugar consumption and could boost import demand since Chinese production has been reduced. This should help to underpin prices.

"I don't think purchases will be increased enough to boost prices and trigger a sharp increase but rather be sufficient to keep the market from falling further.

"Much of the bearish news is already factored into current levels and it would seem unrealistic for the market to keep dropping like a rock from present prices when attention is going to start to shift to the balance for 2015-16 and the hopes for a production deficit."

International Sugar Organization

"Assuming normal weather conditions in the coming 21 months, one can expect sugar output to rebound in a number of countries [in 2015-16] where bad weather has significantly reduced or will seriously affect output during 2014-15.

"On the other hand, a significant retreat in sugar output is projected for the European Union.

"If we put together possible changes in production and projected consumption growth, a deficit of about 2m-2.5m tonnes comes into view, heralding the beginning of a new deficit phase in the world sugar cycle in 2015-16.

"How can our understanding of the current supply/demand situation - a well-balanced supply and

demand in 2014-15 but still high stocks with a probable return of a global deficit in 2015-16 – be interpreted in terms of future market values?

"Any bullish pressure of a looming deficit is expected to be mitigated by high stocks. Therefore, major upward price corrections would be unlikely."

Macquarie

"We remain bullish on [sugar] as we believe persistent drought in the key Centre South region of Brazil has already damaged the cane crop and recent showers have arrived too late.

"In addition, an active ethanol market is likely to encourage more cane crop to be used in the biofuel production, reducing sugar output.

"Unusually early plant closure for the crushing season in the Centre South also provides signals about reduced sweetener availability."

Marex Spectron

"The financial problems of the cane industries are now very serious in India, China, Thailand, Australia. This is in addition of course to Brazil.

"And since the main way in which cane production is reduced is by lowering inputs, and since this is a cumulative process, we have to assume that we are now one year nearer to the time when, around the world, lower inputs of fertilisers and herbicides, together with lower levels of replanting and maintenance, will all have a cumulative effect on world production.

"Some of the bearish factors of 2014 are less likely to occur in 2015, eg the large number of producers who actually increased production.

"We expect that, once the market begins to transit from a surplus to a deficit situation, volatility will at last return."

Rabobank

"Raw sugar futures are expected to maintain an upward trajectory during 2015.

Rabobank sugar price forecasts, 2015

Q1: 16.5 cents a pound

Q2: 16.8 cents a pound

Q3: 17.0 cents a pound

Q4: 17.5 cents a pound

Prices: quarter average, front Ice futures contract

"The supply/demand balance is projected to shift towards a mild deficit of 1.9m tonnes, the first deficit in five seasons.

"Weather remains the driving factor for Brazil's 2015-16 cane harvest. Sugar production is expected to remain around the 31.8m-tonne market in the Centre South.

"The mandated ethanol blend [in gasoline] in Brazil is expected to rise by 2.5 points to 27.5%.

"Combined with the 3% increase in domestic gasoline prices, ethanol demand is expected to strengthen and provide support for both ethanol prices and, subsequently, Ice raw sugar futures."

By Agrimoney.com

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