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Why the strength in white sugar prices, defying the looming EU supply surge?

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Here’s a puzzle.


Sugar production prospects in the European Union, freed of the shackles of output quotas, is poised to rise massively, as France, the bloc’s top beet grower, reminded on Tuesday.


France’s agriculture ministry lifted by 700,000 tonnes to 42.6m tonnes its forecast for domestic beet output in 2017-18 – a surge of 23% year on year, helped by a yield now expected to reach a lofty 90 tonnes per hectare.


(That said France is still behind the Netherlands, which is expecting an average beet yield of “over 91 tonnes per hectares”, according to Suker Unie.)


However, prices of white sugar, the EU’s main beet product, have been on a bit of a tear, rising 6.9% over the past two months, December basis,


New York’s spot raw sugar contract is up 1.7% over the same period.


Demand vs supply


As to explaining the gap, there have been a many explanations, ranging from delays to some EU beet processing campaigns to hiccups to Thai sugar exports coming onstream.


But Marex Spectron says that, simply, “there has been more spot white demand than could be met by spot supply.


“Demand has been accelerated by low prices, while supply has been decelerated by logistical limits to the speed of EU exports,” although these did reach some 300,000 tonnes last month, according to the London-based trading house.


‘Supportive, but temporary’


And producers may be wise to get their sales in if they can.


The market is signalling some retreat in prices ahead, with the March 2018 contract at a discount of some $7 a tonne to the spot December one.


Furthermore, the premium of March white sugar futures over raw sugar futures for the same month, is relatively weak, at $60.01 a tonne, compared with a gap of $64.13 a tonne May basis, and $65.54 for October, on Agrimoney calculations.


According to Marex, “the strength in whites is a supportive feature for the market, but is temporary”.


Interestingly, for March 2019 basis, the premium is up at $66.46 a tonne over raws, signalling that perhaps investors believe that EU beet growers will have a harder time repeating their bumper yields next season.

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