Still in Surplus? A First Look at the 2013-14 Season

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As world market prices fall below production costs we are looking for signs of a response in sugar production and consumption to the new environment.

However, our initial analysis of the 2013/14 season shows that the balance sheet will remain in surplus: This comes despite prices declining by more than 50% from highs above 36c and being below production costs, which implies that difficult times are ahead for most sectors of the global sugar industry.

Production:

  • Our first estimate for the 2013/14 season shows a production surplus of 3.9m metric tonnes raw value (mtrv).
  • However, production has begun to turn down and is set to fall from the record 185.6m mtrv recorded in 12/13 to 182.8m mtrv.
  • Interestingly, this decline in production is being driven by beet, which is an annual crop and so is more sensitive to lower returns.
  • In contrast, cane sugar production is set to rise to a new record at 148.5m mtrv, compared to 148.2m mtrv in 2012/13.

Consumption:

  • It has become apparent that lower prices have been encouraging consumption.
  • We project consumption to reach 177.9m mtrv in 2014, which represents a year on year rate of growth of almost 2%, the strongest since 2008.

“Though producers in many of the growth economies will have to contend with lower cane prices the signal to reduce inputs does not appear to have got through fast enough or loud enough for many industries. As a consequence we continue to expect 2013 to be difficult for producers forced to accept earnings below production costs, which will weaken the balance sheets of the industrial sector while growers will have to adapt to lower incomes or delayed cane payments.”

Toby Cohen, Czarnikow Director

CS Brazil:

  • Cane acreage has increased by 3.3% this year following a 19% increase in plantings. The increase in 1st cut cane will be instrumental in bringing agricultural yields back towards the historical average of 80mt/ha following two poor seasons.
  • We estimate cane availability at more than 600m tonnes in 2013/14, and could see 595m tonnes crushed if the industry is able to sustain their impressive early performance.
  • Given Brazil’s ability to rapidly switch between sugar and ethanol the 13/14 surplus is therefore sensitive to prices and could decline should the Brazilian milling sector chose to re-focus its attention on domestic hydrous ethanol.

India:

  • The 2012/13 Indian cane crop has produced 27.6m mtrv sugar, above initial expectations.
  • 2013/14 cane prices are likely to be higher and this year’s monsoon is currently forecast to be near normal though drought conditions have impacted planting in the south.
  • We estimate all-India production in 2013/14 will be 25.7m mtrv and that consumption will grow to 26.2m mtrv. As a result we expect India to be broadly balanced in the coming season.

Europe:

  • We are expecting a further year of decline in European production this season, to 16.0m mtrv (EU-27, 16.2m mtrv including Croatia, which accedes to the European Union in July).
  • Although planted area is largely unchanged, beet yields are likely to be below the five year average following problems with beet emergence in some countries following a late end to winter.

“We are positive on the prospects for the demand side of the balance sheet and expect to see sugar consumption rise by almost 2%, though this is still well below the levels observed prior to the Global Financial Crisis in 2008. However, the biggest variable today is the production flexibility within Brazil given the ability to increase sales of hydrous ethanol.”

Stephen Geldart, Senior Analyst

Russia:

  • Following the strong crop in 2012/13, domestic prices have traded below world market import parity for most of 2013. This has encouraged a reduction in planted acreage in 2013/14, assisted by a 13% rise in beet production costs.
  • We expect a 20% reduction in beet area in Russia in 2013/14, and while sowing was initially disrupted by cold weather it was completed rapidly once begun. Production is forecast to reach 4.3m mtrv.

Mexico:

  • The 2012/13 crop will set a new record, with production already at 6.6m tonnes and harvesting only likely to finish in the next few days.
  • With the US market also in surplus and logistical difficulties limiting opportunities to export sugars to the world market, Mexico looks set to carry high levels of stocks into the next season.
  • We are expecting to see a reduction in planted acreage in 2013/14, while growing conditions are unlikely to be as good as the current years’.

Conclusion

Despite falling prices and falling production the production balance looks set to remain in surplus in the 2013/14 season.

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