Green Pool hinted at the potential for sugar price weakness as it lifted to a 15-year high its forecast for the extent of supplies of the sweetener, citing strong production prospects in the likes of India and Thailand.
The Australian-based analysis group raised by 629,000 tonnes to 10.43m tonnes its forecast for the world sugar production surplus in 2017-18 - while reducing by 664,000 tonnes to 1.11m tonnes its estimate for the output shortfall last season.
The impact of the revisions brought a watershed boost to inventory expectations, with Green Pool saying that “our current estimate for the surplus for 2017-18 is now more than the sum of the 2015-16 and 2016-17 deficits”.
And - when compared with consumption, to form the stocks-to-use ratio closely watched as an indication of pricing potential – the group foresaw the loosest supplies in 15 years.
The revisions raise “our estimate of global stocks-to-use from 43.2% to 48.4%, its highest level since 2002-03”.
Looser supplies of a commodity are associated with weaker prices, meaning less competition among buyers for supplies.
Indeed, in 2002 New York raw sugar futures fell as low as 4.97 cents a pound, and London white sugar futures to $173.00 a tonne - levels which remain the lowest of the past 17 years.
Green Pool, while stopping short of making forecasts for prices ahead, signalled the potential for further weakness, saying that “while prices have fallen sharply this year, they certainly do not indicate imminent oversupply.
“But it is not uncommon in the transition from deficit to surplus that prices are quite volatile,” the group added, noting that current prices “do easily cover the cash cost of production” for the world’s most efficient producers, if not for most operators.
‘Good Asian monsoon’
Green Pool’s upgrade to its estimate for sugar stocks at the close of 2017-18 reflected in part a downgrade of 320,000 tonnes to 181.9m tonnes in the forecast for world consumption, with the group noting the shift away from sugar in diets in some regions, including the European Union.
The estimate for world output was raised by 310,000 tonnes to 193.4m tonnes, backed “by a very good Asian monsoon, the results of which are only just beginning to emerge”.
Indeed, Thailand was forecast harvesting a record sugar cane crop of “close to” 112m tonnes, yielding some 11.9m tonnes of sugar.
In India, “excellent” progress in the cane harvest backed a forecast of 25.4m tonnes of sugar output.
However, looking ahead to 2018-19, Green Pool cut by 1.3m tonnes to a three-year low of 32.7m tonnes its forecast for sugar production in Brazil’s key Centre South region, citing the prospect of mills turning more cane – 57.3% of the crop – into ethanol rather than sweetener.
That would represent a drop in output of more than 3.1m tonnes year on year.
Green Pool calculates its data on the basis of local production years, meaning that the Centre South output for 2018-19 will be included in global estimates for 2018-19.
Some commentators, such as the International Sugar Organization, stick by October-to-September marketing years, which splits crop years in the likes of the Centre South, where 2018-19 will begin in April.