A second year In surplus: an early look at the 2012/2013 balance sheet
High cane and beet prices will drive a 2.4m mtrv (metric tonne raw value) rise in production during the 2012/2013 season. We are projecting a surplus of around 8.4m mtrv, slightly above our estimate of the 2011/2012 season surplus of 7.8m mtrv, which indicates global stocks could double by the end of the next season. We project cane production to rise to a record 144.1m mtrv from 139.2m mtrv last year, but beet production will fall to 36.9m mtrv, down 2.4m mtrv from last year’s record. This places total global availability at 181.0m mtrv , up from 178.5m mtrv in 2011/2012, and so outstripping demand growth of 1.9m tonnes to 172.1m mtrv in 2013.
- The CS Brazilian industry intentionally delayed this year’s crush start to boost yields in the peak of the season and allow cane to benefit from a wet April.
- Cane area is largely unchanged so growth in output is dependent in a recovery in agricultural yields. This season’s crop has not been affected by extensive flowering or frost which proved detrimental last year.
- Sugar returns remain at a premium to ethanol and so we expect sugar production to be maximised this season. We estimate cane availability at 505m tonnes, producing 32.8m tonnes of sugar and 21bn litres of ethanol.
- The NNE region is expected to produce 4.5m tonnes sugar following a dry off-crop period.
- For 2012/2013 we forecast a further increase in production, driven largely by acreage expansion in Uttar Pradesh.
- We forecast consumption will rise just 1% to 26.1m mtrv in 2013 following strong prices in 2012.
- India will produce be in surplus for a third straight year, but with global stocks building India may struggle to place its surplus onto the world market.
- Strong prices mean farmers should stay with cane and beet in 2012/2013.
- We are projecting cane and beet sugar production will reach 14.2m mtrv.
- Given the supported domestic prices this year, we do not see much upside for consumption in the 2012/2013 cycle. Nevertheless China is expected to remain a structural raws importer.
- The 2011/2012 season has ended with a record 98 million tonnes of crushed cane and 10.9m mtrv produced.
- 5 new mills will come on stream next year and the high returns from cane should ensure the target of 100m tonnes of cane remains in reach for 2012/13.
EU / Russia
- We are projecting a fall in EU sugar production to 16.7m mtrv from 18.5m mtrv last year, due to wetter and colder spring weather.
- We also expect Russian production to be lower this season, at 4.9m mtrv after last year’s multi-decade 5.5m mtrv record. Russia’s import requirement will rise during 2Q 2013 as a result.
- Though the physical market continues to show signs of sporadic tightness, the process of transition to surplus is reaching its end.
- Supply risks are continuing to ease, but the transition to surplus is likely to present a different set of problems.
- As the supply response builds the pressure will be on producers to carry stock or cut back on marginal production, which the market has yet to signal.
Toby Cohen, Czarnikow director, said: “With earnings levels falling, the industry will be under pressure to generate cash and we therefore expect that rather than the increase in stocks being added to domestic balance sheets the surplus will need to be carried by the market.”
Peter de Klerk, Czarnikow analyst, said: “The 2012/13 season is set to deliver a second successive global production surplus. Though cane sugar production will set a new record of 144.1m mtrv this season, Brazilian production is 1.5m mtrv below peak”
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