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Sugar prices - will they pull out of their downturn in 2013?

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New York raw sugar futures, one of the worst performers of 2011, have proven weak in 2012 too, on course of a decline of some 18%.

Prices have been undermined by expectations of a further season of world production surplus in 2012-13, after a weak, rain-hampered start to the crush in Brazil's Centre South – responsible for nearly 90% of output from the top-producing country - gave way to a strong finish.

Also, fears for the cane crop in India, the second-ranked producer, eased after monsoon rains arrived, albeit late, while strong Chinese production diminished expectations of a strong pace of imports continuing.

Will sugar futures prove a better performer in 2013? Leading banks give their forecasts.


"We expect sugar prices to be pressured by a combination of ample supply from Brazil and other large producers, and weaker demand from key importing countries like Russia and China. Array

Q1 2013: 18.6 cents a pound

Q2 2013: 18.0 cents a pound

Q3 2013: 17.5 cents a pound

Q4 2013: 17.7 cents a pound

2013 average: 18.0 cents a pound

Forecast for quarter-average price, New York front futures contract

"We have revised upward our 2012-13 sugar market surplus from 4.8m tonnes to 5.1m tonnes. The Brazilian harvest is coming to a strong end with latest Unica numbers showing strong production in the first half of November, up by 37% compared with the same period last year.

"Additionally China, a major sugar importer, is expected to have favourable production due to an increase in yields amid favourable weather and increased plantings. Resultantly, China is likely to become less dependent on global markets as in previous years.

"The downside may be limited if the domestic price of gasoline in Brazil is raised, which would lead to a rise in the price of ethanol, potentially reducing the sugar surplus as it could encourage more cane use in ethanol production."


"A first look at the 2013-14 season, which includes Brazil's next crop beginning in April, gives reason to be optimistic. The International Sugar Organization anticipates a further surge in Brazil's production to 38.5m tonnes, after 36.1m tonnes from the 2012-13 crop that is now ending. Array

Q1 2013: 20.0 cents a pound

Q2 2013: 21.0 cents a pound

Q3 2013: 21.0 cents a pound

Q4 2013: 22.0 cents a pound

2013 average: 21.0 cents a pound

Forecast for quarter-average price, New York front futures contract

"Speculative financial investors have already reacted to the outlook of plentiful supply by reducing net long positions to their lowest level since December 2007. As we believe that most negative news for prices is now already priced in, we tend to see risks to the upside."Although huge price leaps are unlikely, we nevertheless expect prices to settle above the 20-cents-a pound mark and 22 cents a pound in the fourth quarter of 2013.

"This would also be supported by a higher share of sugar cane going into ethanol production in Brazil, if – as anticipated – the blending obligation will be raised back to 25% after having been reduced to 20% last year. Also globally, rising oil prices should make ethanol production more profitable.

Morgan Stanley

"We remain bearish sugar into 2013 as rising Centre South Brazilian crush volumes and stabilising Indian production forecasts raise our confidence in a third year of production surplus in 2012-13, modelled at 5.4m tonnes.


2012-13: 19 cents a pound

2013-14: 20 cents a pound

Forecast for season-average price, New York front futures contract

"Brazilian gasoline/ethanol policies in 2013 are potentially a game changer for sugar prices. Possible government policies to increase gasoline prices at the pump could support ethanol margins, raising the price floor for sugar.

"A likely increase in the ethanol blend rate back to 25% for the 2013-14 season should also increase ethanol demand, supportive for sugar prices as the Centre South production mix shifts back towards ethanol.

"We see demand growing by 2% year on year in 2012-13, largely driven by the emerging markets.

"Chinese import demand is finally seen slowing in 2013, after a record year in 2012, on high stocks and better domestic production."


"Sugar prices are forecast to ease 5% over the next 12 months as world sugar supply reaches a net surplus of 5.9m tonnes. Array

Q1 2013: 19.0 cents a pound

Q2 2013: 19.0 cents a pound

Q3 2013: 18.5 cents a pound

Q4 2013: 18.5 cents a pound

Forecast for quarter-average price, New York front futures contract

"Current projections suggest stocks-to-use returning to the 10-year average and the lowest annual average prices since 2009."We view market expectations of a larger Brazilian sugar cane crop in 2013 and the increased inventories from the current season as tempering bullish market sentiment in 2013.

"Risk of downside bias is elevated, but the already-bearish positioning of the funds, and the ethanol dynamic in Brazil, as well as production risk premiums, are expected to limit sustained price movement below 18 cents a pound.

"Anticipation that the Brazilian government will implement moderate measures to support mills is expected to be a positive factor for sugar prices in 2013."

Societe Generale

"In Centre South Brazil, both cane crushing and sugar production have rebounded after an initial delay in harvest due to rains earlier this year. Array

Q1 2013: 20.4 cents a pound

Q2 2013: 20.0 cents a pound

Q3 2013: 19.1 cents a pound

Q4 2013: 18.6 cents a pound

2013 average: 20.8 cents a pound

Forecast for quarter-average price, New York front futures contract

"While threats to the expected global surplus have subsided, indeed we are now forecasting a surplus 5.80m tonnes, we continue to expect a gradual decline in this surplus over the coming years and forecast a market in eventual deficit in the longer term."We continue to see risks in the Asian markets, as Chinese imports remain strong under an apparent restocking programme, while there are threats to Indian and Thai production.

"Further downgrades to production in that region and/or continued or increased strength in Chinese imports represent upside risk to prices.

"Given the uncertainty, we see prices largely supported at current levels, if not down to the 18 cents-a-pound mark. But, assuming these risks subside, we continue to expect prices to trend lower over the course of calendar 2013."


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