The sugar market is still dependent on uncertainty. One of the consequences of the corona crisis is that the demand for ethanol has fallen sharply, as a result of which greater sugar production is expected. That puts further pressure on the price.
For a long time we saw the sugar market making a significant recovery. Rising prices since November 2019 peaked in February. On February 12, the Liffe closing price in London was still €413 per tonne. More than 2 months later, there is little left of it. The price even dropped to below €300 per tonne last week, bringing us back to the level the price has been around since mid-2017.
Although the sugar price is recovering slightly this week, the question is whether the market can recover in the short term. Global demand has been disrupted, while superpower Brazil will probably ensure sufficient supply.
Get off to a good start
Brazil is the second largest sugar producer in the world, accounting for around 40% of the global sugar trade. The sugar factories in the country are now running at full speed. The 2020-2021 sugar cane harvest in Brazil's key Mid-South region started in early April. Analysts expect the amount of sugar cane crushed in the first half of April to be almost 40% higher than last year. Production is therefore off to a good start.
Now that producing ethanol is not very attractive due to low fuel prices, the production of sugar has become more attractive. In the first half of April, according to analysts, the share of sugar cane that is processed into sugar increased from 23 to 38%, a plus of 15%. In addition, the percentage of recoverable sugar is relatively high this year. If the Brazilians continue this course, it will affect global sugar supplies. Moreover, importing sugar from Brazil is attractive because of the cheap Brazilian real.
Shrinkage in Thailand
In contrast to Brazil, Thailand, the world's second sugar exporter, is putting less pressure on the global sugar supply. The country's sugarcane production in 2019-2020 is at a 10-year low. This is the direct result of prolonged drought. As the drought continues and global demand for sugar has fallen, experts expect that sugar cane production in Thailand will shrink by as much as 20% next season.
India wants higher minimum price
The low sugar price is causing problems in India, the world's largest sugar producer. Factories are struggling to meet their payment obligations. And while production costs for farmers have almost doubled as a result of the corona outbreak and the lockdown in the country. Producers' organization Karnataka therefore wants the minimum sales price of sugar in India to increase to help factories pay sugar cane farmers on time.
Contrary to global developments, the price of sugar in Indonesia continues to rise. The country is struggling with a meager harvest due to drought. Indonesia is largely dependent on imports, but these trade flows have been significantly disrupted by the corona crisis. And that has a price-raising effect. The Indonesian government is calling for price stabilization ahead of Ramadan.
An opposite move seems welcome for the global sugar market. Perhaps a higher use of sugar in Muslim countries after the fasting month (23 and 24 May) offers prospects for the sugar price. This is also a pleasant prospect for sugar beet cultivation in Europe, which is expected to remain fairly stable in size. Only France has so far reported that it expects a 5,2% smaller area. On the other hand, the latest MARS report is a 1,5% higher production per hectare.
Sowing progress in the Netherlands
In the Netherlands, the last plots of sugar beet will be sown this period. Due to persistent drought, the final steps are the heaviest. At the beginning of this week, 2% of the sugar beet area still had to be sown, Suiker Unie reported. This mainly concerns the West Brabant region. In the Noordoostpolder, the northern clay area and Limburg, beet growers had already completed the sowing work. In Zeeland, 150 hectares of sugar beets have been oversown due to drift and drought. A decision must be made this week to over-sow on several plots in the east and northeast.