Green Pool hiked by more than 2.0m tonnes its forecast for the 2019-20 world sugar output deficit, but cautioned nonetheless against expecting a significant recovery in prices, given that stocks will stay large.
The Australian-based analysis group raised by 2.14m tonnes to 3.76m tonnes its forecast for the global sugar production shortfall for the 2019-20, citing weakened expectations for Brazilian and Indian output.
However, despite the deficit, world sugar stocks will “remain very large by any measure”, swollen by production surpluses of 3.75m tonnes last season, and 18.87m tonnes in 2017-18.
“The market is only slowly working its way through very large stocks,” seen at a record 95.8m tonnes at the close of 2018-19.
“A small-ish deficit for 2019020 – while a step in the right direction from a producers’ perspective – probably needs to be larger to cause prices to move back to longer-term average levels,” Green Pool said.
‘Ethanol pays much better’
The widened deficit forecast reflected an expectation that world sugar production in 2019-20 will fall to 183.7m tonnes, down by 4.75m tonnes year on year, and well below the 202.8m-tonne record set in 2017-18.
The forecast for India’s sugar output was downgraded by 800,000 tonnes to 28.3m tonnes, reflecting lower sowings in Maharashtra, the late start to the monsoon and some diversion of cane to animal feed in the state.
For Brazil’s key Centre South region, the output forecast was lowered by 1.0m tonnes to 25.8m tonnes, with Green Pool estimating ethanol, priced at the sugar equivalent of “just over” 14.5 cents a pound, as a more appealing product for cane crushers.
“Ethanol still pays much better than sugar – by around 2.15 cents per pound,” the analysis group said, adding that “it now seems unlikely that ethanol prices will fall towards sugar prices in the balance of the harvest.
“Ethanol should continue to be the very strong focus of Brazilian millers, not unlike last year when it maintained a premium for virtually the entire year.”
Cane vs casava
The forecast for Thai output was downgraded too, to 12.55m tonnes, reflecting ideas of a dent to cane yields from dry weather, and of some growers switching to other crops.
“Given higher prices for cassava and rice, we expect some farmers who have now had two years of poor cane prices to switch some area into these crops.”
New York sugar futures for October stood at 11.96 cents a pound in late morning deals, down 0.2% on the day.