Global sugar stocks to “return to surplus”

By Sarah Hills

- Last updated on GMT

Related tags: World population, Europe

A turn-around in the global sugar market is forecast following three years of declining stocks, according to analysts at the sugar broker Czarnikow.

During the 2011/12 cycle sugar production is expected to exceed consumption and the surplus could potentially create more of a buyers market for food manufacturers.

The sharp rise in global production is expected as producers respond to high sugar prices, according to Czarnikow.

Meanwhile sugar consumption is expected to grow by 2% in the 2012 cycle following three years’ average annual growth of 1.1%.

Czarnikow said global sugar levels are set to rise by 14.2m mtrv (metric tonne raw value) during the 2011/12 season, with an estimated production surplus of 10.3m mtrv. This compares to a deficit of 0.5m mtrv for 2010/11.

It also estimates that EU sugar production will increase by nearly 2m mtrv to around 17.4m mtrv for 2011/12.

Peter de Klerk, Czarnikow senior analyst, told Foodnavigator.com: “We have had high prices as recently as February of this year and consequently the global producers, particularly the beet producers around the world, have turned up their production.”

He said high prices were a trigger for this, as well as three years of declining stocks and consequently dramatic domestic price rises.

However, de Klerk, added: “Although the size of our projected surplus gives confidence that stocks will be rebuilt, with consumption growth now projected to return to around 2% in line with global population growth, the current surplus only represents three years of consumption growth before fresh production capacity or significant productivity improvements will need to be realised for the market to return to stability.”

The forecast for 2011/12 is also weather dependent and if the current hot spell seen in Europe for example continues, it could have quite an impact, according to de Klerk.

Higher EU production expected

European sugar production is limited by production quotas but de Klerk said they do envisage Europe increasing its production.

He added: “Europe is very much in the situation of having too little stock at the moment. Europe’s increase in production that we are anticipating next year is very much a response to higher domestic prices.”

Total global availability is estimated at 182.2m mtrv in 2011/12, up from 168m mtrv in 2010/11, which Czarnikow said represents a new record.

Czarnikow said that the large size of the surplus and the broad spread of countries in which production is expected to grow “significantly strengthens the prospect that depleted global stocks will rise”.

However the report said the three years of global deficits “resulted in a cumulative 25 million tonne stock drawdown”.

And it concludes that “the overall backdrop to the market is likely to remain volatile as the reduction in stocks has increased the fragility of supply chains and left many regions still vulnerable to temporary shortfalls despite the improving supply outlook”.

Related topics: Market Trends

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