In 2 weeks, Cosun Beet Company will present its payment price for harvest year 2020. In December, the price of white sugar experienced a sharp recovery, but has the cooperative also been able to benefit from this? An analysis of the European sugar market.
A very unfavorable growing season for sugar beet has severely impacted European sugar production. Especially the lack of the seed coating with neonicotinoids is felt in the EU countries. Enough reason for most member states to allow the drug again next season, with the exception of the Netherlands.
Huge shortage
European sugar production is expected to recover for the 2021-2022 harvest. Largely because lower disease pressure is expected. This season, according to analysts, production could end up at a deficit of 2 million tons. Analyst firm S&P Platts is calculating a deficit of almost 1,6 million tons. A season earlier, that was still 343.000 tons of sugar. It is difficult to replenish these large stocks on the world market.
However, the EU is still exporting sugar, while stocks are clearly depleted. This has to do with long-term contracts that European exporters have. According to analysts, hardly any export takes place outside these contracts.
Highest price in 11 months
At the beginning of December, the London white sugar quotation on the Liffe was still falling. In mid-December, a floor of converted €321,33 per tonne was reached, after which the price underwent a strong correction upwards. The peak level was eventually at €387,18 per tonne in mid-January. The sugar price has now fallen by almost €22 again. This price level was last reached in mid-February of last year. The time before that was in May 2017.
For a long time, Brexit hung like a dark cloud over the sugar sector, resulting in a lot of uncertainty. Sugar exports from the EU to the UK are subject to a levy of £350 per tonne, equivalent to €394. The country has now introduced an import quota of 260.000 tons for sugar, regardless of the country of origin. Due to the tight European availability and the import duty, it is expected that the country will mainly purchase raw cane sugar from the world market, which is refined by factories in the country. In the future, the EU will have to compete with the low price level of the world market.
New reality
France, which previously exported up to half a million tons to the country, is expected to export a larger share to countries such as Spain and Italy. The new reality is also having a major impact on the internal British market. The country is far from self-sufficient in sugar, yet the only British beet processor British Sugar is unable to offer growers a rewarding price for beet cultivation.
Another issue that has long dominated the sugar market is the situation in India. It is now clear that the country is also subsidizing sugar exports this season, up to a volume of 6 million tons. This is the main reason why sugar prices have started to fall worldwide, along with a sharp increase in Brazilian sugar production. The country can switch its cane sugar production relatively quickly from ethanol to sugar, or vice versa.
Improvement in 2021
Two factors determine the European sugar sector in the 2021-2022 season. These are the recovery of the economy and normal consumption patterns – as a result of a widely rolled out corona vaccine – and a recovery in beet production. The latter is due to hopefully normal growing conditions and the return of neonics-coated seed.
Platts Analytics calculates with a European sugar yield (EU-27 + UK) of 17,25 million tons. An increase of 6% compared to last season. In France, the beet acreage is not expected to decrease further, which is the case in Germany. The rising grain prices last autumn came in time to choose to sow more wheat and less beets this spring.
Globally, the future for raw sugar (Sugar No. 11 contract) traded in mid-January at its highest level since May 2017. In the meantime, the price - just like for refined sugar - has fallen again. Both Thailand and Brazil are producing less cane sugar this season due to unfavorable growing conditions and the consequences of the corona virus. In addition, in Brazil, for example, it is more interesting to produce ethanol. A tight sugar market is expected until at least April when the new Brazilian crop is expected.