The sugar quote on the Liffe futures market reflects the uncertain sentiment in the market. High oil prices are increasing demand for ethanol at the expense of sugar. At the same time, investors are looking for safe havens because of the war between Russia and Ukraine. The combination of these two factors makes for an ailing quote.
The European Commission reports that the sugar harvest last year amounted to 14,5 million tons, with an average yield of 10,4 tons per hectare. For this season, the Commission expects a harvest of 16 million tons, with an average yield of 11,6 tons per hectare. Improved weather conditions are the basis for this. In addition to higher production, inventory has also increased. On December 31, European sugar stocks amounted to 10,8 million tons. That is 300.000 tons more than one year earlier. The figures bring some relief to the tight market.
This 'enlightenment' is reinforced by the positive sounds from other countries. For example, British Sugar reports that the 2021/2022 season will produce a yield of 1,05 million tons. One season earlier, 'only' 900.000 tons were produced. Improved growing conditions also play a major role here. Brazil also expects a recovery compared to last season and India reports that sugar yields will be 1 million tons higher. Worldwide 173,7 million tons of sugar is expected. That is 2,2% more than in the 2020/2021 season. The good harvest forecasts are immediately one of the bearish sentiments in the market.
Uncertainties in the market
The above figures hint at a positive sentiment in the market. However, that is not necessarily the case. The sentiment can rather be described as 'uncertain'. The quotation on the Liffe futures market therefore does not know how to choose a real direction. The situation in Ukraine is the basis for this. The Russian invasion of Ukraine has caused energy prices to skyrocket. Brent oil, for example, is already above $111 per barrel, the highest level since the summer of 2014. That high price stimulates the demand for and production of ethanol.
For example, India's Maharashtra sugar mills have already agreed to supply 9,4 billion liters of ethanol to oil marketing companies this marketing year, which started in December. These 9,4 billion liters of ethanol will, according to analysts, result in 120.000 tons less sugar. At the same time, some analysts say that price increases in corn and soybeans could shift Brazilian farmers' crop choices at the expense of sugar cane. And investors are looking for safer havens, such as gold.
These changing thoughts about the market ensure that the market moves up and down and does not actually know how to choose a direction. On Monday February 28, the quotation on the Liffe futures market closed at €443 per tonne. On Friday, February 25, the price was €438 per tonne and on Thursday, February 24, the quotation was €445 per tonne. This uncertainty is expected to continue in the coming period. So we have to wait and see which way the coin falls.