Global sugar prices likely to remain under pressure for at least next few months amid ease in import demand, according to new Rabobank report
January 9, 2014
– Prices to Remain Under Pressure
Rabobank has published a new report on the global sugar industry that says prices will remain under pressure in the coming months barring a change in fundamentals such as global stocks and consumption levels.
In the report, the bank’s Food & Agribusiness Research team says that the last quarter of 2013 saw sugar prices briefly trading above USc 20/lb in mid-October, their highest point for almost a year, before embarking on a relentless downward trend to USc 16.3/lb at the current time. According to Rabobank, the fundamentals indicate that prices are likely to remain under pressure for at least the next few months.
“Firm demand for imports, reaction to the Copersucar terminal fire, and doubts about the Brazilian harvest were among the factors behind October’s run-up in prices,” explains Rabobank analyst Andy Duff. “However, since then, import demand has eased, the Copersucar fire was less disruptive than initially thought, and favorable weather in Brazil’s central and southern regions and the strengthening of the U.S. dollar combined to keep prices under pressure through November and December.”
Rabobank’s latest projection of the global supply/demand balance for 2013/14, as outlined in the report, points to a fourth consecutive global surplus of 2.5 million tonnes, raw value. This implies a further build-up of global stocks over the 2013/14 international crop year, maintaining the global stocks-to-consumption ratio at high levels through to September 2014. This in turn suggests that there is limited scope for world prices to move significantly above their recent levels in the coming months unless there is a change in the underlying fundamentals.
Arbitrage by Brazilian millers in the sugar and ethanol markets during the milling season is often cited as a potential source of price support. However, as the campaign in the central and southern regions of Brazil winds down, the arbitrage opportunity effectively closes; mills tend to produce more ethanol at the tail-end of the season for technical reasons, and once the season is over, there is no scope to arbitrage the two markets. As a result, the fact that market prices for both hydrous ethanol and anhydrous ethanol currently offer better returns than sugar will not provide any support for world sugar prices in the coming months.
Domestic political and economic factors in India and Mexico are expected to result in significant pressure in these countries to export large volumes of surplus production in 2013/14. At the same time, China is expected to require less sugar, possibly much less sugar, from the world market in 2014 compared to the volume imported this year. The combination of temporary mismatches of urgent pressure to sell from some exporters and reduced import demand may also put extra pressure on prices.
The potential appreciation of the U.S. dollar against most currencies following the gradual withdrawal of the Fed’s quantitative easing (tapering) is likely to put pressure on dollar-denominated commodities. In addition, there are expectations that the Brazilian real will remain under pressure in 2014 as a result of the country’s deteriorating fiscal outlook and balance of trade.
“There appears to be a distinct shortage of potential upside influences for world sugar at present, bar the obvious proviso that the outlook for production in key countries could change over the coming months,” comments Duff.
Rabobank’s report on the global sugar industry is available to media upon request.
Rabobank Group is a global financial services leader providing wholesale and retail banking, leasing, real estate services, and renewable energy project financing. Founded over a century ago, Rabobank is one of the largest banks in the world, with nearly $1 trillion in assets and operations in more than 40 countries. In North America, Rabobank is a premier bank to the food, beverage and agribusiness industry. Rabobank’s Food & Agribusiness Research and Advisory team is comprised of more than 80 analysts around the world who provide expert analysis, insight and counsel to Rabobank clients about trends, issues and developments in all sectors of agriculture. www.rabobank.com/f&a
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