Global sugar market: Have we reached a sustainable turning point?

Transcription

1 Global sugar market: Have we reached a sustainable turning point? 6 th Annual Kingsman EU Sugar Seminar José Orive Executive Director International Sugar Organization

2 Changing narratives From bearish to bullish: is the current trend sustainable? World sugar balance in surplus High stocks-to-use ratio Raw sugar prices at six-year lows Managed-money was net short Higher than expected output in key producers Weaker Brazilian Real x US dollar Bearish commodity complex World sugar balance in deficit Falling stocks-to-use ratio Raw sugar prices at 17-month high Managed-money is net long Global output to drop the most since 2008/09 Stronger Brazilian Real X US dollar Bearish commodity complex

3 2001/ / / / / / / / / / / / / / /16 Production/Consumption Surplus/Defict 180,000 The world sugar balance After 5 years of surplus, the global sugar market is now headed to a wide deficit in 2015/16 In thousand tonnes, tel quel 15, ,000 10, ,000 5, , ,000 Growing deficit 0-5, ,000-10, ,000-15,000 Source: ISO Surplus/Deficit Production Consumption

4 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 Sugar prices trend higher Front-month raw sugar futures hit 17-month high in March, after touching 7-year lows last August 40 Front-month raw sugar futures (US cents/lbs) BUT how much of the current trend is related to a supply response caused by lower prices? and how much of it is weather related? 0 Source: ICE

5 Supply response Underlying structural changes in global sugar output have been modest Brazil improved profitability likely to shift more cane towards sugar in 2016/17 (April/March) EU multi-year low prices in 2014/15 (October/September) led to reduced acreage China Combination of lower acreage and weather setbacks resulted in smaller production in 2015/16

6 Strongest El Niño on record Weather event peaked in November and is the strongest on record since 1997/98 Heavy rains in Centre- South Brazil and Argentina Dryness in central and northern Brazil Record warm start of winter across the US Hot and dryness in Southeast Asia and Australia Above average tropical activity in the Pacific Rainy Dry

7 Supply features of 2015/16 Drop in output accentuated by adverse weather and poorer yields in key producing countries Production trend versus 2014/15 Recent impact of weather South America Brazil Centre-South Boosted agricultural yields, but lower ATR Brazil North-Northeast Dryness reduces cane availability Argentina Bigger harvest, but more cane being used for ethanol Europe EU Lower crop due to reduced acreage and average yields Russia Record crop on good weather, improved factory recovery rates Central America Cuba Drought and unseasonable rain damaged crops Nicaragua, El Salvador, Honduras Dry weather hampered output Guatemala Crop not as badly impacted due to irrigation Asia Thailand Sharp fall in sugar yields and cane quality India Monsoon below historical average Philippines May import sugar due to lower production caused by dry spells China Smaller output due to lower acreage, dryness and frost Sub-Saharan Africa South Africa Third successive year of dryness leading to lower output Swaziland, Mozambique, Zimbabwe Despite irrigation, crop outlook are poor.

8 2001/ / / / / / / / / / / / / / / /17 Production/Consumption Surplus/Defict 180,000 Looking ahead Another deficit is likely in 2016/17, but the return of normal weather conditions can also give a boost to production. In thousand tonnes, tel quel 15, ,000 10, ,000 5, , , ,000 How big a deficit?? 0-5,000-10, ,000-15,000 Source: ISO Surplus/Deficit Production Consumption

9 Conclusions Have we reached a sustainable turning point? - Current upward trend supported by looming prospects of a widening deficit - Deficit partly driven by weather-related production disruptions - Structural changes to sugar output have been modest - A rebound in 2016/17 production will keep stocks-to-use ratio in check and may bring the return of bearish elements to the market It s all about volatility!

10 Thank you!