The global sugar market is in somewhat calmer waters. Significant price declines since the outbreak of the corona crisis have recently made way for a recovery in the sugar price. This is partly due to the expected lower production, although the European market seems to benefit to a limited extent.
The 2019/2020 sugar season, which ended at the end of September, was turbulent. The global outbreak of the coronavirus not only had an impact on sugar consumption, but also on production. Producers in Brazil in particular switched from ethanol production to sugar. The Brazilians produced more than 2 million tons of sugar more than the previous season.
Surplus instead of shortage
This has an impact on the global sugar balance. Instead of a deficit of 0,1 million tons, the International Sugar Organization (ISO) assumes that the past season will end with a surplus of 1,9 million tons. Nevertheless, prices showed an upward movement in the past period. In addition, the European sugar consultation concluded at the end of November that the price for white sugar for March 2021 is higher than for May 2021. This indicates more demand in the shorter term.
Longer-term prospects also play a role. The ISO currently assumes that the global sugar supply will decrease in the 2020-2021 season. Slightly lower production and significantly higher consumption of almost 5 million tons are expected compared to last season. This means that the sugar shortage at the end of September is estimated at around 3,5 million tonnes. The ISO predicts the largest production declines in Brazil and Russia.
Subsidies in India still uncertain
In contrast, India, Mexico and Pakistan are expected to produce more sugar. The situation in India, the world's second largest sugar producer after Brazil, is still uncertain. The country has been pumping large quantities of subsidized sugar into the world market for several years. Despite the fact that the country is still struggling with a huge sugar mountain of more than 15 million tons, the government's subsidy program at loose ends. This could lead to less exports, which already had a positive effect on the global sugar price in the past period.
Situation in Europe
Is this movement also reflected in the European sugar market? If we look at the sugar quotation on the Liffe in London, we see that the price rose to more than €351 per tonne of sugar between mid-September and mid-November. That level has now dropped slightly to below €340 per tonne. One of the obstacles facing the European sugar market is Egypt's import ban. Despite several requests for clarification, the country is still unceremoniously banning sugar from the European Union.
On the other hand, a significant contraction on the production side is also expected in the European Union. Last season, the area already decreased by 5,5% and a slight area shrinkage is expected again for 2020-2021. With an estimated area of 1,4 million hectares (excluding the United Kingdom) and an average sugar yield of 10,8 tonnes per hectare, European sugar production will decrease. For 2020-2021, 15,1 million tons of sugar is expected, which is 7% less than last season.