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Image: Howzey

Despite all the tee hee and ha ha about a would-be surplus that is acting more and more like a large deficit, not even a small deficit, the situation seems to only be getting worse. For example, when opening my trusty Traveling Trader on Wednesday night, so handily delivered to my Blackberry, I couldn’t help but spurt out a number of expletives when I saw that the Aug/Oct whites premium had shot up overnight to $209.63.

Where have all the bloody whites gone, after all?

Disappeared into thin air, it seems.

Brazil has gone ahead and given the world a taste of what might be closer to reality this week with UNICA dropping its crush estimate by a whopping 6.2% to only 533 million metric tonnes. Sugar production will be lower by 6.4% and ethanol production by 11.4%. They admitted that they didn’t realise the extent of the damage last year’s drought had on cane, and some cane this year has already started flowering. They’ve left open the option to lower their estimates further as the crush progresses, something the trade seems to be in agreement about.

The fact UNICA is dropping ethanol production estimates by 11% is not going to sit well at all with the government who is pushing to ensure the country has enough ethanol supplies next year. Prices have already hit their seasonal bottom and are now headed back up again, much sooner than expected, causing worries all the way up the fuel chain. With the government recently emboldened to impose drastic policy measures to ensure it gets the ethanol it wants, it wouldn’t be too far fetched to imagine that the government does something to ensure the sugar/ethanol ratio changes quickly to its favour.

Ethanol aside, Brazil seems likely to focus on raw sugar production rather than whites, for now at least, as it pushes to get the crop processed in a hurry before cane quality falls even further. And they’re not the only ones with quality issues. Now it seems that Australia, who chose to first crush the 6 million tonnes left standing at the end of last season before starting on the new crop, is suffering from poorer sugar content than expected. At the same time that UNICA cut its estimates, the Australian Milling Council did the same, bringing the total crush there down to less than 30 million tonnes. New crop cane seems to be in good shape though, which may help balance out the old cane.

India has boosted its production estimate again, this time to 24.5 million tonnes, which may mean more exports later in the year after the Diwali festival season ends, but again, that’s raws. And maybe not the highest quality either. The Philippines seems very proud of its new surplus and has decided to export an additional 200,000 tonnes of raws on top of its US exports this year but it’s not enough to offset Brazilian and Australian cuts in production. They’re competing in the same space with Thailand, who has plenty on offer and who is getting nice premiums for their sugar—500 point premiums until last week for J-spec and 250 points for hi-pol—so they’re going to have to look further to get good prices on their sugar. A keen eye would send them west to North African and Dubai refiners. The EU looks like its refiners need some extra supply to. After all, how long can Estonia survive with €1,000/tonne sugar?

White sugar markets are now beginning to feel the pinch but it’s likely to get a lot worse before it gets better. Though futures are getting to roll out of Aug and into Oct, meaning these $200+ whites premiums aren’t likely to last long, the Oct/Mar and Dec/May are close enough to $150 to be a worry. In Mexico, the concern about whites availability—or rather, their type of whites known as estandar—is making the mills, and more so, the consumers, jittery, The crush only just recently came to an end but already there’s shortages and prices have climbed over US$1,025 in the northern border states with prices expected to be US$940 across the rest of the country very soon.

There has been talk that Mexico has exported too much sugar, both raws and estandar, to the US in recent months in an effort to take advantage of market tightness there. If the US summer holds well and the crop can end average—as the opportunity for a bumper beet crop was lost due to floods forcing late planting—then they might end up alright. But then again they might not, meaning a need for more whites there in a hurry. The US has already boosted its import quota twice now for this season, meaning more business for the few refineries that exist. But more raw imports may mean reaching refining capacity, creating a backlog and a restricted white sugar availability despite raw supplies.

The EU, on the other hand, has decided to solve its supply problem in the best way it knows how—by issuing a call for consultants to figure out the effects of these high prices on food prices across the EU-27 and how to get the market back in order, econometric style. The results of the study should be ready by autumn 2012.

I guess planting more beet is still out of the question?