El Niño lurking
Sugar market prepares for roller coaster ride
The French sugar merchant Sucres en Denrées, better known as suden, warns of more volatility in a preview of the international sugar market. You would think kicking in an open door. However, there is more to it. The chance of an El Niño is increasing, which could give the sugar market a completely different turn.
More volatility in the sugar market is partly driven by a return of production surpluses on the world market, Sucden writes. However, the El Niño weather phenomenon occurs. As we saw at the end of 2015 and the beginning of 2016. That could suddenly change the shape of the market. Under 'normal' weather conditions, the broker expects a world sugar production of almost 133 million tons for the 2017-2018 season. That is an increase of 10 million tons compared to the 2016-2017 season. This increase is mainly due to the recovery of Indian sugar production and the expansion of beet cultivation in the European Union.
2
million tons
The increase in sugar production exceeds increased consumption, according to the market office. With a consumption increase of 3 million tons, 2 million tons of sugar is left over on the world market. That is the first time in three years. This doesn't mean companies are sitting back with more sugar in their sights. On the contrary, volatility is increasing, driven by uncertainty. A surplus can quickly turn into a deficit due to extreme weather conditions. In the past two years, the deficit on the world market was 10 million tons. That puts the trade on edge. A surplus of 2 million tons is therefore relatively small.
Chance of El Niño increases
It is realistic to assume that it will be dominant again. The chances of an El Niño weather pattern are increasing further. If this becomes a reality, India (the second largest producer) will receive considerably less rain during the monsoon period. This also causes more drought in Asia and Australia. The largest cane sugar-growing areas are faced with precipitation shortages. The US actually benefits from more precipitation.
The Australian Meteorological Bureau speaks of an increased chance of an El Niño. Six of the eight weather models expect the El Niño threshold to be breached in July. Meteorologists keep a close eye on developments. The probability is estimated at fifty percent. Double what the expectation is normally.
Import by India
Another factor that could have a rollercoaster effect is India's sugar imports. The largest sugar-producing state, Uttar Pradesh, went to the polls last week. It is likely that the government will make up for the sugar shortage by importing 1,7 million tons of sugar. For now, India is expected to produce 5,2 million tons more cane sugar in 2017-2018. The reason given is a greater availability of water. The total production will then amount to almost 25 million tons.
The increase in production from the EU contrasts somewhat sharply with this, at 2,8 million tons. This brings total beet sugar production to 18,4 million tons. Exports are expected to increase by over a million tons to 2,5 million tons.
Brazil production down
Expectations for Brazil are negative. A cane sugar production of 35,2 million is slightly less than last season. This is due to lower exports, lack of capacity in factories and a focus on producing sweeteners instead of sugar for ethanol. New investments in sugar cane cultivation and processing are hardly made, which has a negative effect on the yield.
The development of the sugar price on the London futures market. Both the European Commission and various sugar producers expect the price level to continue to fluctuate around 500 euros per ton next season.
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Niels van der Boom
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