The world market is “one shock away” from breaking through the $0.20 (€0.18) per pound level (approximately €390/tonne), Rabobank said, as it projected a deeper deficit for 2015/16 (Oct/Sept) of 8.5 million tonnes (raw value) and another deficit of 5.5 million tonnes next year.
Assuming average yields and other factors remain constant, a sugar production of between 16.5m tonnes and 17m tonnes seems “credible”. “All in all, the coming period will see plenty of uncertainty for stakeholders.”
The next few months will “be all about the weather” with the tail-end of major Asian region harvests generally weaker than expected, prompting further downward revisions to 2015/16 production estimates for major players like India, Thailand and China.
It was a similar story in Europe, with the bloc’s total production falling 20% in 2015/16 due, in the main, to a decrease in sugar beet area and sugar beet yields. The UK and Germany, for example, produced some of lowest tonnages in decades.
However, the price of sugar in the EU has remained fairly stable. It’s been hovering around €415 to €435 per tonne, said Rabobank analyst Ruud Schers; €433 was the latest reported average price from the European Commission in March. This could soon change, though.
In the period between September 2015 and May 2016, the global white sugar price increased by more than 40%, “decimating” the premium between EU and global prices, Schers explained.
In February the premium was €80 per tonne but by the end of May the difference “might be approaching nil”, he said. “This development of the past quarter may affect import flows during the tail of the 2015/16 season […] impacting stock levels and supply in the bloc [and] subsequently pushing prices up.”
EU quotas currently cap the amount of sugar beet producers can grow, but 2016/17 is the final year of the regime. Beet growers have reportedly sowed an area below the five-year average. The expected tightness in supply is certainly worth keeping an eye on, Schers continued.
“This may lead to an upward move of prices in the direction of current spot prices, which are reported at a premium of more than €100 per tonne above the EU average price.” However, “the majority of EU countries seem to be confident with supply in the bloc to bridge across to the next season”, he added.
Some have warned that the ending of quotas could be disastrous for public health as the market is flooded with cheap sugar.
In terms of consumption, Europe is lagging behind the global growth rate of 2%. However, it’s tricky to determine the exact patterns of growth in the bloc, said Schers.
"There is still a difference between EU countries as regards the per capita consumption as well as cultural difference in terms of consumption of processed foods," he said. "Furthermore, there is also a difference in population growth and decline across the EU. For the coming year, it is too early to tell how this will turn out exactly.”