The International Sugar Organization, forecasting a world sugar output deficit next season, flagged “cautious optimism” over sugar prices, but downplayed the potential for a marked rally, given bumper stocks.
The intergovernmental group - noting the prospect of a “significant” world sugar production shortfall in 2019-20, as starts next month – said that market “fundamentals provide some grounds for cautious optimism concerning future dynamics in world prices”.
However, it added that “considerable surplus stocks are still overhanging the market”, with world inventories forecast ending this month at 95.09m tonnes.
That represents an upgrade of 1.94m tonnes from the previous forecast, in June, and is equivalent to 54.5% of world annual consumption.
The excess stocks “still need to be absorbed before prices can return to more remunerative levels for producers”.
‘No shortages anticipated’
The comments come at a weak time for sugar futures, which in New York ended Friday at 11.14 cents a pound for October delivery, a contract closing low, and the weakest finish for a spot lot in 11 months.
The latest declines, spurred by fund selling, has been attributed in part to weakness in the real, and India’s decision to subsidise 6m tonnes of sugar exports in 2019-20 at a time when world supplies are already strong.
The ISO, in its first detailed forecasts for 2019-20, saw a world production deficit of 4.76m tonnes, reflecting “a projected production fall in India and Thailand, down 4.70m tonnes and 1.54m tonnes, respectively, as against 2018-19”.
Nonetheless, it said that “no shortages in physical supply to the world market are currently anticipated” in 2019-20”.
Brazil vs India
The ISO forecast Indian output falling to 28.30m tonnes in 2019-20, with exports rising to 5.25m tonnes, allowing for some drawdown in the country’s huge inventories, once buoyant domestic consumption is factored in.
That would see India fall back to second place among world producers, with Brazilian output seen growing by 500,000 tonnes year on year to 28.70m tonnes.
For Thailand, output was forecast at 12.90m tonnes, while EU production was expected at 16.82m tonnes, marginally higher year on year.