World Sugar News

World Sugar News

As at 29 July 2010

For much of 2010, sugar prices have come under pressure as the expected large supply response, from the record prices at the beginning of 2010, was priced into the market. This nervousness over the pending supply response was compounded by the dry weather in CS Brazil, which is allowing the Brazilians to crush the expected record 600 million ton cane crop at a record pace, creating a bearish outlook for the price. The market however did not factor in possible logistical delays that could arise when the majority of the world demand is supplied by one producer, Brazil.

What was also not considered was that many countries had almost depleted their sugar stocks on the back of the higher prices at the beginning of the year, which discouraged them from buying large quantities. The lower prices seen at the start of the Brazilian harvest saw these buyers coming to the market, which resulted in a sharp increase in physical demand in April/ May. The result was that large quantities of sugar had to be handled at the various Brazilian ports, resulting in logistic bottlenecks as more vessels added to the line-up daily. At this time of year, vessels normally wait 10 days to start loading sugar, but their waiting time is currently a month, with vessels joining the line-up daily. Adding to the congestion is the fact that the sugar harvest coincides with the corn and soybean harvest and these grains are exported via the same ports as sugar. This has created an artificial shortage as the sugar has been produced to balance the world supply and demand equation, it just cannot be exported fast enough. This has resulted in the world price rallying from the 13-15 c/lb range up to 18-19 c/lb range.

Further compounding the situation is the significant demand for white sugar as countries restock, and the Middle Eastern countries stock up before Ramadan, driving the white sugar price significantly higher, which has supported and dragged the raw sugar price higher as well.

It has been suggested that the congestion will only be cleared after expiry of the October 2010 contract, which could see the end of the congestion occurring towards the end of their harvest. This raises the possibility that prices could decrease slightly towards the end of the year as Brazil attempts to reduce their stock levels at the same time that the Indian crop starts, which is currently expected to exceed their demand, adding further pressure to prices. The end to the logistical backlog, should also reduce physical premiums, while demand destruction due to the unavailability of sugar in some countries, might see export demand being slightly lower than anticipated.

It is expected that the market will remain strong until the tightness has been sorted out and the bottlenecks have been cleared, which should happen around the September-October period. It is then expected that participants will focus primarily on the pending supply response from the Northern Hemisphere producers, particularly the 2010/11 Indian crop, which would determine the trend and sentiment going into 2011. As the size of the next Indian crop has been forecast between 22 and 26 mln tons, the question remains if the sentiment will be bearish (26 mln tons) or bullish (22 mln tons). Therefore, the Indian crop will once again determine prices going into the new year.