The 2011/12 sugar surplus arrives
The 2011/12 season will see the sugar market to return to surplus, with the supply side of the balance sheet being the strongest it has been for years.
The 2011/12 season will see the sugar market to return to surplus, with the supply side of the balance sheet being the strongest it has been for years. With the production season now approaching its end, global closing stocks will rise by 7.7m mtrv. Although prices are lower than 2011 averages, they are yet fully reflect this new reality with the cash market still coming to terms with these changes.
Beet crops have played a pivotal role in the surplus, with excellent Northern Hemisphere crops contrasting with disappointing Southern Hemisphere cane harvests. The major Northern Hemisphere cane producers such as India, Thailand, US/Mexico and China are now mid-way through their crush and are expected to show a year-on-year improvement in output overall.
Among Czarnikow’s key findings for the 2011/12 season are:
- Global production is projected to reach a record 178.1m mtrv, 10m mtrv more than last year.
- The 2011/12 surplus has increased by 1.6m mtrv since Novemeber.
- Production has grown by 31% in the decade to 2011/12, compared with 16% growth in the decade to 2001/02 and 23% in the decade before that.
- Beet sugar production has reached levels not seen since the early 1990s, with EU production reaching a 6-year high.
- In 2012/12 beet production will reach 39.2m mtrv, 7.1m mtrv higher than last year
- Cane sugar production is forecast to rise to 138.8m mtrv, 2.3m mtrv higher than last year.
- Early indications are that cane production will exceed 140m mtrv in 2012/13, with the recovery of the Brazilian crop.
The rate of growth of global sugar consumption has slowed due to increased alternative sweetener usage, high prices and other consumption changes, and is now below aggregate levels of population growth.
Between 2006 and 2008, sugar consumption grew at an average of 3.3% - above the average rate of population growth. However, between 2009 and 2011, consumption grew at just 1% per year, less than the underlying rate population growth and indicative of falling per capita consumption linked to increasing substitution.
Current prices are not at levels that will reverse trends towards lower consumption growth and increased use of sugar substitutes.
- Poor agricultural yields resulted in this year’s harvest (494 million tonnes) being constrained by cane availability.
- This setback appears to have spurred the sector and Brazilian government to action, focusing on improving mills’ financial situation and boosting agricultural yields with the aim of raising ethanol production.
- The allocation towards sugar is the highest in 5 years and indicative of a renewed focus on sugar given higher cash generation.
- The harvest in the North East region is proceeding well with mills reporting a cumulative crush of nearly 48 million tonnes to January 15th, up 5% year on last year.
- Indian production is predicted to rise to 27.8m mtrv from 26.3m mtrv last year, with current figures for Maharashta and Uttar Pradesh exceeding last year’s crush by a considerable amount.
- Higher cane throughput is due to a high State Advised Price for cane and higher wages paid to harvest labour.
- Monthly government sugar releases have been running ahead of consumption, requiring sales windows to be extended and for February the government has mandated a lower sales tonnage.
- The Indian export programme has seen nearly one million tonnes of export licenses granted, while a further 350,000 tonnes were exported during Q4 against 2010/11 licenses.
- Czarnikow estimates Thai production at 11.3m mtrv from 10.4m mtrv last year.
- Latest production reports show 64m tonnes of cane crushed compared with 54m tonnes last year.
- The start of the rainy season in the next month or so, and the impact this will have on harvesting practices and yields, will be pivotal to determining the final outturn.
- Chinese production has been revised down to 12.2m mtrv, from 12.5m mtrv in November.
- This is due to disappointing January results in the Guangxi cane region and in the northern beet crop.
- China is anticipated to become the biggest world market importer this year. The domestic shortfall is estimated at 3m mtrv.
Mexico & US
- Mexican production has been revised down to 5.4m mtrv, and consumption has been estimated at 4.1m mtrv, down 300,000 tonnes from November.
- The NAFTA regional market is facing increased inter-dependence and import needs, with the US short of sugar while Mexico continues to accept cheaper US fructose sweeteners as a replacement.
- The Mexican surplus of over 1 million tonnes will be insufficient for the US’s import needs above the US TRQ and could see both Mexico and the US make further imports during the year.
Toby Cohen, Czarnikow director, said: “It is now certain that global stocks will rise this year. After three years of drawdowns, record global production will see the supply side balance of sugar in the best shape it has been for several years.”
Peter de Klerk, Czarnikow analyst, said: “In the immediate term the supply side outlook is focused on the large cane sugar producers in the Northern Hemisphere following an excellent beet season. Strong Northern Hemisphere production is driving the balance sheet back to surplus.”
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