World sugar supply surplus seen fading in 2017/18

The global sugar market will be more balanced from 2017-18 after two years of short supplies.
The global sugar market will be more balanced from 2017-18 after two years of short supplies.PHOTO: REUTERS

NEW YORK (REUTERS) - The global sugar deficit that sent prices soaring last year is expected to fade away in the upcoming crop year, though expectations of whether a surplus emerges remain mixed, said industry experts during New York Sugar Week on Wednesday (May 10).

The world is headed toward a more balanced sugar market in the 2017/18 crop year, after two years of short supplies that sent prices soaring in 2016, Plinio Nastari, president of Datagro Consulting Ltd, said during an industry conference.

Datagro, a sugar and ethanol consultancy in Brazil, is projecting a small deficit of 200,000 tonnes in the crop that begins Oct 1, on the heels of a deficit of 7.85 million tonnes this year, Nastari said.

Others expect a small surplus to emerge, with Sucden's Head of Research Emmanuel Jayet saying the trade house is maintaining a view that the world will see a surplus of 3 million tonnes in 2017/18, despite a year-to-date price rout that has pressured raw sugar futures by about one-fifth to under 16 cents per lb.

The increase in supplies comes as millers in Brazil's center-south cane region boost sugar output to 36.8 million tonnes in the current harvest, up from 35.6 million tonnes during the previous harvest, Nastari said, citing improvements in rainfall patterns and better treatment of the cane due to higher prices seen last year.

The pace of world demand growth will also slow next year, amid disappointing growth in Asian demand and changing consumer behavior, Nastari said along the sidelines of the conference.

Even with sugar prices down sharply year-to-date, Brazil's center-south mills will increase the amount of cane they divert to sugar output to 47.5 percent, versus 46.3 per cent in 2016/17, as prices of sugar still remain more competitive or at parity with domestic ethanol prices.

Brazil's mills can choose to divert their cane to production of ethanol for the domestic fuel market or sugar for export. Sucden's Jayet said prices would need to fall closer to parity with Brazil's domestic ethanol prices, currently equivalent to about 14.5 cents per lb, before millers choose to produce more biofuel.