February 2010 - Deficit estimate rises 10% as production disappoints

Expected recovery not being seen

It is now becoming clear that initial hopes for a strong recovery in production during the 2009/10 season will not be realised. Consequently, the 2009/10 deficit could be as great as the record deficit seen in 2008/09. We have increased our estimate of the deficit by 10% from 13.5m metric tons raw value to 14.8m mtrv, just short of last year’s revised deficit figure of 15.6 mtrv. The latest revisions mean that global production is expected to reach 152.8 mtrv, compared to 150.2 mtrv last year, which is down substantially from the initial August estimate of 158.2m mtrv. Supply will not be sufficient to meet demand and we continue to anticipate a forced reduction in consumption during 2010.

A number of key trends in the largest sugar-producing markets are influencing this trend:

  1. India: Production in 2009/10 is set to be very similar to last year, despite the industry’s initial hopes that production would rise to 19.94m mtrv. This figure today looks optimistic as production has been mixed, with lower than expected planting levels and a poor monsoon impacting production.
  2. China: Domestic demand is growing as the economy industrialises, and   although production has increased, China could face a substantial deficit by the end of the year that will not be met from stocks. China has the potential to emerge as a significant market factor later in the year
  3. Thailand:  As the world’s second largest sugar export economy, the country is an important indicator of the health of Asian production. Production this season is now expected at 7.8m mtrv down from initial forecasts of 8.4m mtrv.
  4. Vietnam: The Vietnam cane crop has also faced disappointing conditions.   Production is projected to fall to just over 1m mtrv, in line with last year’s total, having previously been projected to increase by 150,000 tonnes.
  5. Mexico:  Production prospects have looked suspect since the start of this year’s harvest, with cane throughput only reaching peak throughput at the end of January, even though the harvest started in November.
  6. Brazil:  The extension to the season and switch towards increased sugar production at the expense of ethanol has brought our Brazil estimate for the 2009/10 cycle to 35.9m mtrv, which is up from the 35.3m mtrv November estimate and 2.3m mtrv above last year’s production figure.

Toby Cohen, head of analysis, at Czarnikow, said: “With northern hemisphere cane producers experiencing poor crops, it is becoming clear that there is a larger shortfall than we predicted in November. In fact, we are raising our deficit figure by 10%, as we believe that total production this year will only be marginally higher than last year, and only marginally higher than the rise in consumption. However, given low stock levels in almost all markets, we do not believe that supply will be sufficient to meet demand and continue to anticipate a forced reduction in consumption during 2010, which could ultimately force a revision in these figures.”

Notes to Editors

For further information please contact:

Czarnikow
Toby Cohen
Peter de Klerk 020 7972 6600

Cubitt Consulting 0207 367 5100
Caroline Merrell

About Czarnikow:

Czarnikow Group is one of the most respected names in agricultural commodity markets and has been providing high quality market services since 1861.  Czarnikow operates in three core areas; sugar, biofuels and corporate services. Their success is built upon knowledge of the market, confidentiality, reliability and independence.

Commercial involvement in physical sugar transactions in excess of 8 million tons of sugar each year means that Czarnikow has a first hand presence in all major sugar markets of the world.  Czarnikow works throughout the entire supply chain providing services to growers, millers, refiners, beet producers, traders, merchants and industrial users.

Czarnikow operates from a head office in London and a network of 10 regional offices to service clients and customers globally.