However, some instability is expected into mid-2012 as crops sizes remain uncertain and the industry plays catch-up on a three year deficit.
In its recently published report ‘Outlook 2012—Down, But Not Out’ Rabobank has forecast the mean raw sugar price for 2012 at USc 22.6/pound, a 12% fall on the mean 2011 price, which stood at USc 25.8/pound.
“With global ending stocks expected to increase above the 10-year average for the first time since 2008/09, we anticipate NY raw sugar prices will ease and reach an average level of USc 0.22/pound in Q4, “said the report.
Risks of volatility
However, Rabobank said a heightened political risk amid current economic uncertainties will create some instability in the market.
“Even with the 6 million tonne surplus forecast for 2011/12, we expect volatility to remain elevated and the current risk premium to linger until mid-year when crop sizes are more certain,” it said.
It added that increased supply, which it has forecast, will result in lower prices.
Rabobank has forecast total global sugar production for 2011/12 to be up 5% on the previous season to 174.5m tonnes. It said strong production in the EU, Russia, Thailand and India had offset year-on-year decline in Brazilian production.
However, it said: “The forecast surplus will not be enough to replenish the 19.8 million tonnes of deficit of the past three seasons, and while the stocks-to-use ratio is expected to increase in 2011/12, it is forecast to be five percentage points below the 10-year average.”
Although the domestic EU crop has been forecast by Rabobank to climb to 17.4m tonnes from 15.1m tonnes in the previous season, the additional supply is out-of-quota and not available for human consumption.
“Given the supply issues the EU experienced in 2011, we anticipate policy action if a shortfall is expected, but what the EU will do, and to what extent, is unknown,” said Rabobank.
Significant changes to the EU sugar regime, including the phasing out of sugar quotas, are expected by 2015 as part of Common Agricultural Policy (CAP) reforms.
Late last month, the EU’s Sugar Management Committee proposed the possibility of a release of up to 400,000 tonnes of out-of-quota sugar onto the internal market against the payment of a levy of €85 per tonne as opposed to the usual tariff of €500 per tonne.
The move was supported by the Committee of European Sugar Users (CIUS), a trade group made up of food and beverage manufacturers.