Sugar, a commodity produced, consumed and traded globally, is not only limited to households, but also widely used in industrial applications. The outlook for the sugar market has changed dramatically since the start of the year from the major producers - Brazil, India, and Thailand. Some of the industry’s prominent analysts are divided on whether the market will face a surplus or deficit in the season. The difference in opinion lies on how much the pandemic will slash consumption or prompt top producer Brazil to make more lucrative sugar at the expense of cheaper ethanol.
In the 2019/20 season, global sugar production estimates stand at approximately 166.2 MMT, as major producing countries reduced output due to weather-related complications and increased ethanol output. Brazil’s sugar output in the 2019/20 season was limited, due to an increase in ethanol production, as ethanol is deemed profitable. Brazil’s Center-South ended the 2019/20 crop year with approximately 589 MMT of sugarcane crush and approximately 35% was directed to sugar production, while 65% was diverted towards ethanol production. Sugar-ethanol plants produced approximately 33 billion liters of ethanol in the 2019/20 season, a 5.1% increase year on year.
Weather-related complications and reduced acreage resulted in lower yields from other major producers. Severe drought and wet conditions led to reduced output from India, EU, and Thailand as production estimates stood at approximately 28.9 MMT, 17.2 MMT, and 8.2 MMT respectively compared to the previous season where production estimates were 34.3 MMT, 17.9 MMT, and 14.5 MMT respectively. As the 2019/20 season began, sugar prices were forecast to surge due to the decrease in output, but prices have since declined by nearly 6% since the beginning of 2020 as a result of the pandemic rattling the commodity markets
Global sugar production is forecast to fall short of demand by 1.1 million tons next season, according to Patricia Luis-Manso, head of agriculture and biofuels analytics at S&P Global Platts. That’s similar to an estimate by John Stansfield, a veteran analyst at Group Sopex. For Raissa Cury Pires da Silva, head of Americas sugar research for trader ED&F Man, the world will face a second year of surplus. Global sugar consumption was already declining before the virus hit as health-conscious consumers cut back. The pandemic hurt demand by 2.5 million tons last season compared to the pre-Covid outlook and more is expected to come, according to Platts. Europe is one place where demand was particularly hit, with a potential reduction of as much as 500,000 tons, higher than the European Commission’s forecast.
Projected Increase in Sugar Production in the 2020/21 season
Sugar production in the 2020/21 season is forecast to increase to approximately 188 MMT, a 21.8 MMT increase compared to the 2019/20 season, according to the USDA – Sugar: World Markets and Trade report. Production is forecast to recover from Brazil, India, and Thailand. Sugar production in Brazil is forecast to increase to approximately 39.5 MMT, due to a change in dynamic from sugar-ethanol plants. Low gasoline prices have negatively impacted the ethanol industry thus causing a shift in dynamic from ethanol to sugar production, leading to a 46% and 54% split compared to the 35% and 65% split last season.
Sirivuthi Siamphakdee, vice chairman of the Thai Sugar Millers Corp said that “Some regions have received as much as 20% more rainfall so far this year than a year earlier, said Heavy rains ended a prolonged dry spell. We felt relieved by the rainfallNow we wait and see whether the rain would make canes grow faster.” he said in an interview. Thailand’s sugar output is forecast to increase to approximately 12.9 MMT, due to favorable weather conditions. Increased precipitation in the month of August through to September is forecast to ease the pressure on the drought-hit crop, thus increasing prospects for a larger crop.
More rain is in store for Thailand through August and September with the overall precipitation expected to be more than last year, according to the Thai Meteorological Department. Showers may begin to ease in the north and the main cane-growing northeastern region from October, it said. While the total rainfall this year is expected to be better than last year, it will still be below the nation’s 30-year average.
Now with Brazil set to see a stronger sugar mix in the 2020/21 harvest, sugar output from the region is estimated to increase by around 9mt YoY. As a result, the global sugar market is expected to return to a surplus of around 5mt in the upcoming 2020/21 marketing year. While recovering oil prices and BRL should provide some upside to sugar over the course of the year, this expected surplus should limit the upside to prices over the next season. Mills in CS Brazil have shifted their production mix significantly this season towards sugar, with sugar prices trading well above ethanol parity, and so sugar provides a better return than ethanol for mills. This has been a big shift from the trend we have seen in recent years. Over the past couple of seasons, given the global sugar surplus, mills had been maximizing ethanol over sugar. So far this season, the cumulative sugar mix stands at 45.92% compared to 33.31% at the same stage last year.
However, Datagro’s chief analyst Plinio Nastari expects adverse climate conditions in most of Brazil in recent months will hurt sugar cane development and lead to a smaller crush and sugar production in the new season next year, sugar and ethanol consultancy projected. The center-south cane crop to reach 575 million tonnes in the April 2021 to March 2022 season compared to 596 million tonnes in the current crop. Mills in Brazil’s center-south region are expected to produce 36 million tonnes of sugar in the 2021-22 season versus 38 million tonnes for the current crop
“Mills would probably have to postpone the crushing kick-off next year to allow more time for the cane to recover,” Nastari said, citing another expected result of the unfavorable weather in Brazil this year. The small production fall should not however prevent mills from having a positive year next season, as both sugar and ethanol prices in local currency are near record levels. Referring to the sharp recovery in benchmark New York futures that is allowing mills to hedge large volumes of future production at good profit margins. The analyst thinks mills in the world’s largest sugar producer will have three consecutive years of good revenues considering current indicators.
According to the Indian Sugar Mills Association (ISMA), India’s sugar production is estimated to increase by 13 per cent to 31 million tonnes in the 2020-21 marketing season starting this month, on likely higher availability of sugarcane, The sugar season runs from October to September. In its first advance estimates for the 2020-21 season, ISMA said it expected 330 lakh tonnes of sugar production based on total cane expected to be crushed by mills this season. However, it also expects that the diversion of cane juice and B-molasses to ethanol production will result in the loss of 20 lakh tonnes of sugar, ending up with 310 lakh tonnes.
This is 13% higher than last year’s production of 274 lakh tonnes, driven largely by a 48% increase in Maharashtra’s net cane plantation area. Among other major sugarcane-growing States, Karnataka and Gujarat have also seen some increase in crop area, although Uttar Pradesh and Tamil Nadu saw marginal decreases. Monsoon rainfall has been good in most States, and reservoirs are full, leading to high production expectations.
However, the remaining sugar stock from the previous year is at 106 lakh tonnes, which is 55 lakh tonnes more than the domestic requirement for the next few months before the new season’s sugar production becomes fully available in the market. “Since we expect much higher production in 2020-21 SS, India will need to continue to export about 60 lakh tonnes of the surplus sugar out of the country during 2020-21 SS,” said ISMA.
Consumption Forecasts Higher in the 2020/21 Season
Global sugar consumption is forecast to increase in the 2020/21 season by 6.2 MMT to approximately 177 MMT compared to the 2019/20 season, according to data released by the USDA. Consumption is forecast to recover slowly, due to the impact of the coronavirus on economies of different countries. Sugar consumption is forecast to increase in India, Russia, Pakistan, and Egypt to approximately 28.5 MMT, 6.2 MMT, 5.8 MMT, and 3.3 MMT respectively. Consumption in the U.S and Mexico is forecast to increase slightly to 11.1 MMT and 4.38 MMT respectively. China, E.U, and Brazil’s consumption forecasts are projected to remain unchanged.
Indonesia, Bangladesh, Malaysia, South Korea, Algeria, and UAE are forecast to increase consumption in the 2020/21 season. The impact of the pandemic on disruptions in global supply chains, trade flows, and economies due to restrictions in movement has had a massive impact on global sugar demand in the 2019/20 season. Slowly, governments globally are easing lockdown measures and implementing strategies that will assist in economic recovery and strategies to prevent further infections or waves, as countries adjust to the new “normal”. I believe economies will recover and a solution will be found for the virus thus positively impacting demand in the 2020/21 season.