2015/16 – In Deficit?

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Global sugar production in 2014/15 was the highest on record, at 187.1m mtrv (metric tonnes raw value).

This eclipses the previous high of 185.5m mtrv recorded in 2012/13. This is despite sugar prices falling to multi-year lows. Our first outlook for 2015/16 is that production could be the second highest on record at 186.0m mtrv, though this view is dependent on the CS Brazilian crop. Nevertheless, we calculate the 2015/16 deficit at 1.7m mtrv at this early stage.

Global Production: 2014/15 Season

  • 187.1m mtrv of sugar was produced, 2.7m mtrv above the 2013/14 season and 1.7m mtrv more than was produced in the 2012/13 season, the previous record year.
  • Consequently, despite prices falling to multi-year lows, global production has remained stable for the last 3 seasons.
  • World beet production was 39.2m mtrv, up 11% on the 2013/14 season and just 200k mtrv behind 2011/12’s record beet crop.
  • Europe accounted for much of this swing: EU-28 production was up 16% YOY to 19.9m mtrv.
  • In contrast, cane sugar production contracted year-on-year in 2014/15, to 147.9m mtrv from 149.1m mtrv, but was still the third largest on record.

Global Production: 2015/16 Season

  • Our initial forecast for the 2015/16 season is for global sugar production to remain stable.
  • We forecast production at 186.0m mtrv, but believe that 2015/16 could see record cane sugar production, at 149.7m mtrv.
  • This view is highly dependent on CS Brazilian cane crush performance and the sugar mix!
  • However, we forecast a retraction in beet production, to 36.3m mtrv, largely in the EU-28 where we have seen dramatic acreage reductions.

Consumption

  • With production stable, it’s consumption growth that has pushed the world back into deficit.
  • We estimate that consumption will reach 183.1m mtrv in 2015, up 2.2% from 2014.
  • This is above the 1% annual consumption growth seen during the last bull cycle and shows how sugar consumption growth has responded to lower prices.
  • Our first estimate for 2016 consumption is that it will grow by a further 2% to 186.7m mtrv.
  • This is above global population growth levels and reflects an increase in world per capita consumption.

Global Balance

  • We estimate that 2014/15 was in surplus by 3.0m mtrv (including a 1m mtrv allowance for disappearance).
  • 2015/16 looks set to be in deficit of 1.7m mtrv – the first world production deficit in 5 years.
  • Stocks have rebuilt by 23.6m mtrv in this time. Therefore the world will have approximately the same level of stock as during the 2008/09 season.
  • Consequently, it could take time for the effects of this deficit to be seen in the market.

CS Brazil

  • Cane development for 2015/16 has been excellent: we estimate cane availability for the coming season at 615m tonnes – a new record.
  • The pressure is now on the industry to process all of this cane.
  • If the weather remains in line with historical averages for the rest of the season we believe the sector will crush 596m tonnes of cane.
  • However, wetter than expected weather could see the overall cane crush diminish, or mills crushing into the wet season at the end of the year.
  • We are currently assuming that mills maximise sugar production from July onwards as sugar gives better EBIT margins for the milling sector.
  • This would result in a 44.4% sugar mix in 2015/16, giving 34m tonnes of sugar.
  • However, sugar and hydrous spot returns have converged and the ethanol market gives mills more immediate cash generation.
  • In addition, since the beginning of the year hydrous demand has been strong as pump parity has held at 65% in Sao Paulo State.
  • Given the risks from the weather and the ethanol balance sheet, we consider our 34.0m tonne sugar production estimate to be a stretch target for the industry.

India

  • The 2014/15 season has set a new record for production in India, at 31.5m mtrv, exceeding the previous record of 31.3m mtrv from 2006/07.
  • The main driver for this performance has been cane crushing performance inMaharashtra (MH) and Karnataka (KN).
  • In MH, high water availability for irrigation has seen farmers replant fallow land.
  • We estimate sugar production at 10.5m tonnes MH and 5.0m tonnes in KN (both records).
  • In Uttar Pradesh (UP) cane production has also increased to 7.1m tonnes this season, up from 6.5m tonnes last year (not including unrecorded production).
  • Despite farmers receiving late payments in UP, cane still pays better than other competing crops such as rice and wheat.
  • For the 2015/16 season we are expecting another large crop in India.
  • High reservoir levels inMH and KN should see continued strong cane plantings.
  • In UP we will see a further 5% drop in cane acreage but stronger ag yields as cane is removed from more marginal areas.
  • We forecast India production forecast of 30.6m mtrv, the third largest on record.

Thailand

  • The 2014/15 cane crush was the strongest on record, at almost 106m tonnes.
  • Sugar provides farmers with better returns than other crops, especially rice.
  • Cane payments to farmers have been repeatedly topped-up to ensure they remain unchanged year on year.We expect this process to continue.
  • This means we believe that cane acreage will increase in 2015/16, giving 110m tonnes cane.
  • At this early stage we forecast Thai sugar production in 2015/16 at 12.7m mtrv.

Conclusion

Stephen Geldart, Analysis Manager, said, “While our first forecast for the 2015/16 season shows a deficit, stocks have been rebuilt by 5 years of surplus to levels last seen in 2008. Therefore it’s not immediately obvious how supportive this deficit will be to the market in the short term.”

Ana Carolina Ferraz, Analysis Manager, said, “We believe there are greater downside risks to production in 2015/16 than upside risks. In particular, CS Brazilian cane crushing and the production mix will be even more important than usual for the market.”

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