Green Pool raises surplus estimate based on slower demand growth

Published: 06/30/2017, 8:33:10 AM

Green Pool highlighted the threat to sugar consumption from the likes of health concerns and rival sweeteners as it raised by 837,000 metric tonnes its forecast for the looming world sugar production surplus, according to Agrimoney.

The Australia-based sugar consultancy revised up to 5.55 million tonnes its forecast for the global output surplus in 2017/18, taking it to the largest since 2013/14.

The upgrade reflected in part a nudge higher to 188.4 million tonnes in the estimate for production, prospects for which "have been boosted significantly by the high prices of the last 12 months or so", during which period they have averaged 19.08 cents a pound.

Output at that level would be up 10.6 million tonnes year on year.

However, Green Pool's revision to its stocks forecast was down in the main to a reduction of more than 500,000 tonnes, to 181.9 million tonnes, in the estimate for global consumption in 2017/18.

That represents an increase of just 2.6 million tonnes year on year.

Sugar demand "is struggling - facing high domestic prices in many countries, assisted by high tariffs and duty barriers, and high import prices from the global surge in the past year", the group said.

"But sugar consumption also faces health concerns and sugar taxes in many countries, not just developed countries, limiting its usage."

Additionally, rival sweetener such as high fructose corn syrup and low calorie alternatives "have made inroads into sugar usage where high prices have provided a market for them".

Green Pool lowered to 1% its forecast for average annual sugar consumption growth ahead, well below historic rates of increase.

"Traditionally 2% or more growth has been the norm."

The comments come amid increasing debate over the future of sugar demand, with concerns of slowing growth viewed as a big factor in the tumble in New York prices back below 13 cents a pound over the past week,

Brazil's Sao Martinho this week termed "not very probable" ideas of a fall in demand in India.

In fact, New York's October contract soared 6.3% to 13.56 cents a pound in late deals on Thursday, in a rally attributed to a rash of short-covering, triggered by ideas that prices had reached such low levels that Brazilian mills would be tempted en masse to covert cane into ethanol rather than the sweetener.

Indeed, Green Pool rated as a "risk" to its expanded forecast for the world sugar surplus in 2017/18 the idea that Brazilian mills might increasingly favour ethanol over the sweetener.

"Sugar prices have collapsed faster than we had imagined, and if they fall much further, we may need to cut" an estimate of 35.5 million tonnes for sugar output from Brazil's key Centre South region.

"Massive premiums that sugar held over hydrous ethanol over the past year have all but disappeared.

"We may soon be back in a situation where hydrous [ethanol] is paying a premium to sugar."

The group also cut its estimate for the world sugar output deficit in 2016/17 by 1.93 million tonnes, raw value, to 2.04 million tonnes, citing an enhanced estimate for Pakistan's production.

The Pakistan Sugar Mills Association said last month that the country's sugar production surged to 7.05 million tonnes, tel quel, in 2016/17, from 5.08 million tonnes last season.

Green Pool attributed the output jump to "high, government-fixed cane prices and substantial diversion by farmers of land from cotton to cane".

The figure had met with "some disbelief around the market, given it happened in the middle of that industry's negotiations with its government over export quotas and export subsidies".