August 2010 - In Surplus Or Not?: A Second Look At The 10/11 Balance

Increase in production not enough to resolve sugar balance

When we published our first analysis of the 2010/11 balance sheet in May, we expected to see the large rise in global production during the 10/11 crop cycle return the sugar market from deficit to surplus. Although it is still very early in the cycle, the idea that next year’s sugar balance will be resolved through an increase in global production now seems less certain. Extreme weather conditions in Russia and Pakistan have crushed hopes of an increase in production in the 10/11 season, while growth in many other areas of the world is not likely to be as strong as first expected. Our latest analysis indicates that the increase in global production will now not be enough to build a surplus in the coming year. This means the 10/11 balance sheet is more likely to be in equilibrium than surplus.

  • We have revised our growth forecast for 2010/11 down from 17.4m mtrv to 14.8 m mtrv.
  • During 2010/11, we project cane sugar production to rise to 137.9m mtrv from 123.1m mtrv last year, while beet sugar production is unchanged on last year’s at 34.3m mtrv.
  • We are estimating global consumption in 2010 at 167.9m mtrv rising to 171.3m mtrv in 2011.

Country breakdown

  • Brazil: The mid-August total of 338 million tonnes of cane crushed represents round 60% of the CS Brazil cane total and we are expecting total production to reach 41.7m mtrv.
  • India: Indian crop prospects for 2010/11 continue to look promising; we expect sugar production to increase by around 30% to reach 27.1m mtrv.
  • Pakistan: Although serious floods have displaced up to 20% of Pakistan’s population, we are holding our figure unchanged at 3.75m mtrv.
  • EU: Our projection has been revised down by 0.4m mtrv to 16.2m mtrv.
  • Russia & FSU: Russian beet crop prospects in Central and Volga regions have been damaged by a heatwave, so we have reduced our production estimates from 4.1m mtrv to 3.3m mtrv.
  • China: We expect 13.2m mtrv during 2010/2011, but with consumption at 16.1m mtrv, the country will be in deficit.
  • Thailand: The forthcoming crop is now expected to reach a similar level to last year at around 7.6m mtrv, down from our initial estimate of 8.4m mtrv.

Conclusion

Significant production growth in Brazil and India should see the global balance sheet return to equilibrium during the 10/11 season. Following a 25.9m mtrv draw down in global stocks during the two previous seasons, producers have responded to higher prices and production is forecast to rise by 14.8m mtrv. It is also becoming increasingly apparent that the sugar market is carrying a higher level of weather risk than in the past. This is in part due to the longer crushing season in Brazil, given its significance to the global balance sheet, but also a reflection of the more turbulent weather patterns that we are currently seeing. Of greatest importance to the market is the growth of production and export availability in Brazil. The new crop production has been drawn back to meet residual demand from the 2009/10 season, suggesting that even the expected return to equilibrium could prove to be illusive for the physical sugar market.

Toby Cohen, head of analysis at Czarnikow, said: “The idea that next year’s sugar balance could be resolved with an increase in production now looks less certain, as the recent turbulent weather conditions take their toll on production in areas as far a field as Russia and Pakistan.”

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Notes to Editors

For further information please contact:

Czarnikow 020 7972 6600
Toby Cohen
Peter de Klerk

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.