February 2011 - Production forecast cut as weather impacts global production
High prices slow growth in consumption
The 2010/11 balance has swung further into deficit as early hopes of a return to surplus proved too optimistic. With the Northern Hemisphere beet harvest reaching a disappointing end and with Southern Hemisphere cane harvests also falling short of initial hopes, it has become apparent that many producers have suffered as a result of this year’s weather. Prices have responded to these changing conditions by rallying to 30 year highs, in the context of general strength across commodities, before stabilising in a new higher range as the latest downward revisions to production figures have in part been offset by slowing physical off-take at higher prices. While conditions vary from country to country, it is clear that there has been limited growth and rising substitution over the past few seasons in response to higher prices. Our conclusion is that we are seeing slower consumption growth, however, the trend remains clear; the global balance is slipping deeper into deficit in 2010/11.
Production
- There will be a third consecutive year of stock draw downs in the global sugar market.
- The current deficit now stands at 3.7m mtrv vs. 2.8m mtrv as previously forecast in November.
- Our forecast of production growth (2010/11 vs 2009/10) has been cut to 8.7m mtrv, compared to the 11.1m made in November 2010 and our initial forecast of 17.4m mtrv in May, prior to weather events constraining growth.
- Our forecast of global production in 2010/11 at 165.6m mtrv is down 2.8m mtrv from our previous estimate (and down 6.6m mtrv from our August estimate) but up from 156.9m mtrv in 2009/10 driven by growth in India and Brazil.
Demand
- High prices are disrupting supply chains in some regions, while more broadly, the rising cost of food has contributed to unrest in some Northern African and Middle Eastern states.
- Consumption is expected to continue to rise to 168.7m mtrv in 2011 (though this is down from previous estimates).
- These aggregate revisions result in the lowest average growth in sugar consumption over a three-year period since the collapse of the Soviet Union in the late 1980s.
Toby Cohen, head of analysis at Czarnikow, said: “There is no question that weather risks have increased through 2010 and these adverse events are likely to continue into 2011, which will certainly affect how we should view statistical forecasts in the current climate.
We are forecasting that global production will rise by 8.7m mtrv in 10/11. However, without the growth in India and Brazil, global production would actually have contracted in 10/11. That’s an interesting thought to ponder.”
Notes to Editors
For further information please contact:
Czarnikow
Toby Cohen 020 7972 6600
Cubitt Consulting 0207 367 5100
Caroline Merrell
Russell Lindsay
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 finance. Its success is built upon knowledge of the market, confidentiality, reliability and independence.
Czarnikow deals with around 10% of the 50 million tonnes of sugar that is traded annually, which means that it 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.