A Second Look at the 2012/2013 Surplus
The outlook for southern and northern hemisphere sugar production and consumption has changed over the last few months.
We now expect better sugar cane production from the likes of Brazil, and higher beet output in the US, EU and Russia. Offsetting this is weaker output from India. Taken together, the changes have largely balanced out, and we maintain our forecast for a further production surplus, expecting stocks to rise for the second year running in 2012/2013. While lower sugar prices should encourage demand after four years of slow growth, this is likely to be a gradual process, and prices may need to fall further to boost consumption.
Production and consumption estimates
- We have revised down our sugar production forecast for the 2012/2013 season by 0.4mln mtrv from our projection in May, to 180.6mln mtrv (143.2mln mtrv of cane sugar, 37.4mln of beet).
- We estimate global consumption will rise to 173mln mtrv in 2013, 0.9mln higher than our May estimate, as lower sugar prices and the rising cost of corn sweetener (owing to the US drought) boost demand.
- This will take the global balance sheet to a 7.1mln mtrv surplus (allowing 0.5mln mtrv for unrecorded disappearance).
- Rainfall delayed the start to the crushing season, but has boosted the quality of the cane. Harvesting was also helped by an unusually dry August, which saw record throughput.
- We expect to see 525mln tonnes of cane crushed this season in CS Brazil. Total cane sugar production is expected to reach 33.5m tonnes tq, up from our 32.3m tonne estimate in May.
- Strong sugar returns mean producers are maximising sugar over ethanol production.
- Dry conditions in Maharashtra and Karnataka are hitting output: we have reduced our 2012/2013 forecast to 25.9mln mtrv, down from our 29.2mln estimate in May, and this would be the lowest since the 2009/10 season.
- Domestic prices held up between March and June, and so we are forecasting consumption in 2012/2013 at 26.1mln mtrv, a 1% increase on 2011/2012.
- Warmer weather in recent months means we are increasing our production estimate from our May forecast albeit by just 0.2mln mtrv to 16.9mln.
- With this small improvement, and with around 1 million tonnes carried into this year’s quota from last year, we estimate 1.4m tonnes of exports this season.
Toby Cohen, Czarnikow director, said: “We continue to forecast a fourth, consecutive year of rising cane sugar production- a trend not seen since the early 1990s. A production surplus and lower prices should encourage increased consumption. But consumers may not respond as quickly as the market would like.”
Peter de Klerk, Czarnikow analyst, said: “Better weather and harvesting conditions will provide a boost to the CS Brazil’s crop. And this, coupled with better-than-expected beet harvests across Europe, means a bigger balance sheet surplus for the global sugar market in the coming months.”
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