March 2010 - Confidence evaporates as futures price collapses
market expected to return to surplus in 2010/11
Czarnikow, one of the UK’s oldest sugar traders, has warned of continued problems in the sugar market in 2010/11 after confidence in the market has taken a battering and low prices have cut into profitability.
Spot sugar prices collapsed by nearly 50% to 17.00c/lb between early February and mid-March - the largest fall in prices since the 1980s - as investors liquidated their positions. This collapse of the futures market, as confidence in the sugar story evaporated, completely overran the physical activity in the market, Czarnikow said in its latest monthly Sugar Review.
While the 2010/11 season appears to be heading into surplus, as a result of better growing conditions, the fall in price has highlighted a number of global risks for the market. Rather than high prices threatening affordability, the low prices are now cutting into profitability. As a consequence there is little incentive or funding for further growth.
Other key points in this month’s Review are:
- The production deficit generated by the 2009/10 season continues to be the key market feature. Czarnikow’s current figures point to a deficit of 12.6m metric tones raw value. This is despite the tail of the Indian crop being stronger than expected by around 2m tonnes. However, China, Thailand and Mexico are all indicating lower production.
- Short-term deficit pressure was reduced by a number of developments, including the European Union’s decision to export an unexpected 500k of out-of-quota exports over and above the WTO limit; and Brazil export flows during the off-crop period continuing above expectation.
Toby Cohen, head of analysis at Czarnikow, said: “Given the collapse of market sentiment it is very difficult to see the immediate path for the market. In the short term we have to expect to see volatility remain high, and though the market should retrace some of its losses, we cannot yet identify a catalyst to signal a change in direction given the way that the market has ignored recent take-off.
“Despite the rise and fall in prices, little has changed in terms of the fundamental structure. The sugar market remains heavily exposed to a few key suppliers while stock levels remain extremely low.”
Notes to Editors
For further information please contact:
Czarnikow
Toby Cohen
Peter de Klerk 020 7972 6600
Cubitt Consulting 0207 367 5100
Caroline Merrell
Michael Faulkner
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.