2015/16: Brazil Fuels the Deficit
Global sugar production in 2015/16 is forecast to fall by 4% this year to 178.9m mtrv. This is the first meaningful fall in sugar production since 2008/09. The fall in production has been driven by CS Brazil, where wet weather has hampered production, and the EU, where acreage is significantly lower year on year. Our global deficit estimate for the 2015/16 season has widened from 4.1m mtrv in our previous estimate to 8.2m mtrv, largely as a result of the changes in CS Brazil.
Global Production: 2015/16 Season
- Global sugar production in 2015/16 is forecast at 178.9m mtrv (metric tonnes raw value), from 187.0m mtrv in 2014/15.
- For the first time in 7 years we’ve seen a significant fall in global sugar production.
- The 4% drop in production this season has been driven not just by low prices (in the case of Europe), but also by the weather, especially in CS Brazil.
- In our last publication, we estimated cane sugar production at 148.2m mtrv. We now forecast cane sugar production for the season at 144.3m mtrv.
- Beet sugar production is marginally higher than our previous 2015/16 estimate at 34.6m mtrv.
- However this still represents a sizeable reduction year on year, with 2014/15 beet sugar production totalling 39.1m mtrv.
- We estimate sugar consumption in 2015 at 182.9m mtrv, an increase of 2.4% from 2014.
- Over the past decade annual consumption growth has averaged close to 2%; lower prices for much of 2015 have led to stronger-than-average consumption growth.
- For 2016, we estimate consumption at 186.1m mtrv, with growth slowing to 1.8%.
- This is above global population growth levels and reflects an increase in world per capita consumption.
- 2015/16 looks set to be in deficit of 8.2m mtrv – the first global production deficit in 5 years, and an increase from our previous estimate of 4.1m mtrv made in August.
- While stocks remain plentiful after 4 years of surplus, prices have responded in recent months to the shortfall in production.
Centre South Brazil
- Despite record cane availability of 650m tonnes mills will only process around 582m tonnes cane this season.
- Sugar production will consequently be close to 30m tonnes, the lowest since 2009/10 (28.6m tonnes; 32.0m in 2014/15).
- A key factor behind the failure to process all the cane has been wet weather in the tail of the crop, which has hampered an industry already set to test crystallisation capacity.
- Cumulative rainfall so far this year has been over 20% higher than the historical average, while November has been the wettest in recent memory.
- Despite sugar having paid a premium to ethanol for a large part of the season, mills have prioritised ethanol production.
- Given the amount of available cane this season, some mills will look to crush into the offseason, especially given strong spot sugar and ethanol returns.
- Looking further ahead at the 2016/17 CS Brazil crop cane availability will exceed crushing capacity once again.
- The No.11 in BRL terms is providing Brazilian mills similar returns to what they were able to achieve in the deficit years when the flat price was trading over 30c/lb.
- Consequently at this early stage we are expecting a higher allocation of cane to sugar in 2016/17.
- We are holding our view that Indian sugar production will be strong this year, and forecast production at 30.4m mtrv (31.1m in 2014/15).
- This is lower than the 31.3m mtrv we forecast in August and follows further crop surveys in Maharashtra.
- Winter rains have been weaker than in recent years in Solapur and Marathwada and consequently poor cane growth following the deficient monsoon has not been overcome.
- We now estimate Maharashtra sugar production at 9.35m tonnes, 10% lower than last year’s (10.5m) but still the 3rd highest in the last 10 years.
- Meanwhile in Uttar Pradesh we have revised our production forecast higher to 7.8m tonnes from our previous estimate of 7.6m tonnes (and 7.1m in 2014/15).
- We expect a record 108m tonnes of cane to be crushed over the 2015/16 season (106m in 2014/15).
- Despite poorer yields we expect record production as a result of an increase in cane acreage, which we estimate at almost 4% higher year on year.
- This is a result of the better returns that sugarcane provides relative to rice, in part owing to government top-ups to the cane price paid to farmers.
- We estimate sugar production in 2015/16 at 12.2m mtrv, compared to 12.1m mtrv last season.
- Whites premiums above $80/mt in the middle of 2016 suggest that we will see another large remelt.
Stephen Geldart, Analysis Manager, said, “Production has stagnated in recent years while consumption continues to grow at around 2% per year. The question for the market in 2016 is what price is required to maximise sugar production in the short term given existing assets, and what price can incentivise longer-term investment in sugar cane and beet industries around the world.”
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