These are turbulent times on the sugar market. As a result of corona, the market collapsed earlier this year, but a slight upward price movement can now be seen. The situation in India could give the market a further boost.
After Brazil, India is the world's second largest sugar producer. The role the country plays in global sales, on the other hand, is often criticized. The Indian government has been providing heavy subsidies to the sugar industry for several years to stimulate exports and thus reduce domestic stocks. Partly because of this, India exported a record amount of 6 million tons of sugar last year. However, the question is whether that will be the case again next season.
Although it was previously assumed that India will also win the 2020/2021 subsidizes sugar exports, this is now in doubt. The Indian Minister of Commerce recently indicated that the government is unlikely to extend the export subsidy. The sugar industry in the country is shocked and fears that the market will collapse completely.
Export incentive needed
An export incentive in the form of a subsidy is necessary to reduce the unusually high domestic sugar supply. According to the industry, the country must export at least 5 million tons of sugar to reach a somewhat acceptable supply at the end of the season. That means a sugar mountain of still 10,5 million tons. Sugar exports help ensure that the sugar mills in the country remain financially afloat.
Without this government subsidy, they can rely on exports, because production costs are many times higher than contract prices for sugar on the international markets. Ironically, India has partly created this problem by pumping a record amount into the world market last season. In addition to the traditional markets such as Bangladesh, Malaysia and Sri Lanka, a lot of Indian sugar has also been sent to new markets. This would involve Iran, China, South Korea and Somalia.
Brazil benefits
If Indian sugar exports fall, Brazil will primarily benefit. Although the country's sugar cane yield is lower than previously expected due to persistent drought, more Brazilian sugar is likely to enter the global market. Factories have focused more heavily on sugar production, because the demand for ethanol collapsed due to the corona crisis.
Moreover, a further depreciation of the Brazilian real in recent times has further boosted the country's exports. In October, Brazil exported 4,2 million tons of sugar, the International Sugar Organization recently reported. This breaks the record set in October 2012, which stood at 3,93 million tons.
Less production in other countries
In addition to major powers India and Brazil, other international developments also influence the sugar market. For example, Thailand produces significantly less sugar. Due to drought, many Thai sugar cane growers have switched to cassava cultivation. Thailand is the world's second largest sugar exporter after Brazil, with an annual export of about 10 million tons. Russia also has one increasingly important role plays on the international sugar market, previously expressed expectations have been somewhat tempered and expected sugar production has been reduced.
Finally, the situation in the European Union also has an impact on the sugar market. The sugar beet harvest on our continent is falling 2,8% lower than the multi-year average and is 1,9% below last year's level. This was evident from the MARS report at the end of October. In combination with disappointing sugar levels in many European countries, this leads to a significant increase lower sugar production for 2020/2021.
Positive price development
For the time being, it ensures that the slightly upward movement in the sugar price, which has been visible in the past period, will continue. For example, the Liffe closing price in London closed on November 10 at €338 per tonne. This means that the level before the corona crisis is still far away, but the low point at the end of April (€284 per tonne) seems to be behind us for the time being.