Rains across the UK and Northern Ireland have been annoying at best and down right inconvenient, or even damaging, at worst. But that’s nothing compared to how rains are affecting the sugar harvest from Brazil to Australia, putting this year’s surplus at a risk.
Brazil’s already had a hell of a time trying to get past its funding crunch and move beyond inept policy making on the federal level, but rains over the past several weeks are now beginning to take a real toll on the harvest. Sadly, but good for both the raw and white sugar premiums, this season looks like it may end up being entirely too wet.
Copersucar said this week that the harvest is already 11 days behind, a big chunk out of a 200-day harvest. As rains interrupt the harvest, focus will be on the quick and easy products like raw sugar and hydrous ethanol rather than white sugar and anhydrous ethanol that take longer to produce. That’s going to mean increased white sugar premiums, which Bloomberg says are already up 66% on the year.
Then you’ve got the raw sugar premium, which is also on the rise because of increased demand in raws from Asia. Lineups from earlier this month show that 20% of the vessels waiting to load have a Chinese destination as the country is looking to import more than 3 million tonnes of sugar to help it resupply its stocks, rather than its traditional 1 million tonnes of imports. Current lineups show similar levels as well, though West Africa is also a major destination.
But rain doesn’t just get in the way of harvest, it also gets in the way of loading those ships. As the rains continue, the delays in getting the sugar out and onto the high seas will continue well. How far back that backup will go is unclear but what is clear that if the rains continue, then the delays will have to be figured into the new prices as shipping costs increase due to longer waiting time for loading.
It’s not just Brazil who’s facing these issues of delayed harvest and delay shipping, but Australia as well. Already half of the country’s 24 mills who have started crushing have had to stop operations until the rains subside. For both Australia and Brazil, continued rains will mean lower sugar content, reducing yields that are already suffering from the remaining cyclone damage on one hand and the lack of credit to renew fields on the other.
Yet just in the same way that rain is getting in the way of the Brazilian and Australian crush, a delayed monsoon in India already has industry there worried about what the impacts from that weather anomaly will be. The start to the monsoon, which should have hit New Kerala by 1 June, is so far the worst since 2009. Maharashtra is experiencing drought-like conditions and the late monsoon is making the situation worse.
Already yield estimates for 2012/13 are being lowered, in part due to the drought in Maharashtra but also now because of fears over a poor monsoon that may only come in at 96% of average. For a country that receives 70% of its moisture during the June to October period, this will have major consequences on all of its crops, including sugar. Production for next season is now seen at 24.5 million tonnes instead of the original estimate of 26 million tonnes, and we’re far from the season’s start in October.
What just may make matters worse is the expectation that there is an El Niño brewing in the tropical Pacific. Though it shouldn’t appear until the end of the southern hemisphere’s winter, that’s the end of summer to us here in the north, the telltale signs are already showing themselves. What El Niño translates to in sugar terms is wetter in Brazil and drier in India.
Basically this means that the worst of the worst may compound, to keep Brazil’s harvest wet and perhaps leave significant amounts of cane unharvested if they can’t be reached in time. Domestic sugar prices have even started reversing track, heading north rather than south as they should this time of the year when supply traditional comes onto the market.
Already UNICA has said that the harvest will be delayed, with the bulk of the sugar production coming on later in the season. But if later in the season really means about the same time as when El Niño begins to kick off, then the situation may never dry up and ships will remain backlogged well into the inter-harvest period.
Continued dryness in India will also begin cutting away at the bumper crop there, not only limiting opportunities for mills there to cash in on exports in a market that may need to cover a shortfall coming out of Brazil, but it could also spook the government into re-imposing export limits that will tighten the market all together. Much of this season’s surplus is expected to come from India, but if India is drying out, then that’s pretty much what is going to happen to the surplus as well.