Ron Sterk

The U.S. Department of Agriculture, in its Nov. 17 Sugar: World Markets and Trade report, forecast record high global sugar production, consumption and exports in the current 2017-18 marketing year and the largest global surplus since 2012-13. While the global situation is ample, supplies remain relatively tight in the United States and Mexico. The latter country typically provides about 10% of total U.S. sugar supply and around 40% of total U.S. sugar imports.

The U.S.D.A. forecast 2017-18 world sugar production at 184,949,000 tonnes, up 3% from its initial forecast in May, up 8% from 171,472,000 tonnes in 2016-17 and up 12% from a seven-year low of 164,703,000 in 2015-16.

The International Sugar Organization (I.S.O.) in its Quarterly Market Outlook also released Nov. 17 concurred with its own forecast of record production at 179,448,000 tonnes, up 7% from 2016-17.

Of the 10 largest sugar-producing countries, only the United States (down 1.5%) and Australia (down 6%) are expected by the U.S.D.A. to show decreases from 2016-17, with record-high production forecast for Brazil, the European Union, Pakistan and Russia. Production in top-producing Brazil is forecast at 40,200,000 tonnes, a modest increase of 3% from last year, with exports at a record 29,600,000 tonnes, up 4% for the year and equal to 48% of total world exports. Analysts expect Brazil’s sugar production and exports to decrease in 2018-19 (beginning April 1, 2018) due to adverse weather for the new cane crop and improved margins on ethanol, due in part to new taxes on ethanol imports, which mostly have come from the United States.

Sugar warehouse
The U.S.D.A. forecast 2017-18 world sugar production at 184,949,000 tonnes, up 12% from a seven-year low of 164,703,000 in 2015-16.

Huge increases are forecast for No. 2 producer India (up 25% from 2016-17) due to improved weather and increased area and yield, and for No. 3 producer the E.U. (up 22%) due to the lifting of production quotas in October 2017. Increases of 12% and 13%, respectively, also are forecast for Thailand, the world’s second largest sugar exporter, and for China, the second largest importer.

Global consumption is forecast by the U.S.D.A. at a record 174,223,000 tonnes, up 2% from the May forecast and up 1.5% from 171,623,000 tonnes in 2016-17. Consumption increases are forecast for all of the top 10 consuming countries or regions except the E.U. (flat) and Indonesia (down slightly). The I.S.O. forecast global sugar consumption at 174,414,000 tonnes, up 2%.

Both the U.S.D.A. and the I.S.O. expect global sugar ending stocks to increase in 2017-18, and both expect a substantial global sugar surplus, which tends to be a pressuring factor on global sugar prices. The U.S.D.A. production and consumption forecasts equate to an expected surplus of 10,726,000 tonnes, up from an estimated deficit of 151,000 tonnes in 2016-17, while the I.S.O. expects a surplus of 5,034,000 tonnes this year compared with a deficit of 3,105,000 tonnes last year.

“At this stage of the season, we are still not factoring into forecasts any potential acceleration of consumption due to possible weak world prices during a year of global surplus, or any negative impact of the ‘sugar and health’ debate on consumption,” the I.S.O. said. The I.S.O. also expects a modest global sugar surplus in 2018-19, which it said makes the world sugar pricing picture “not look too promising.”

The North American situation

The sugar supply and price situation in the United States and Mexico, which basically became an integrated market under the North American Free Trade Agreement, are significantly different than the world market. The U.S.D.A. in its Nov. 9 World Agricultural Supply and Demand Estimates report raised from October its forecast 2017-18 ending stocks, but stocks still are down 3% from 2016-17 and the key stocks-to-use ratio remains a relatively tight 14.1%. U.S. sugar production is forecast down 1.5% from last year while total consumption is expected to increase 1.4%.

Perhaps the most concerning part of the U.S. supply-and-demand scenario is that the 2017-18 supply forecast largely hangs on an expected 40% increase in imports from Mexico, which seemingly no one in the trade sees as possible due to increased use, tight supplies and high prices in Mexico.

U.S. refined sugar prices basically are set for 2017-18 as most beet processors are well sold or even sold out, and consequently most large buyers have needs covered through Sept. 30, 2018. Pricing indications for 2018-19 suggest levels about 1c a lb below 2017-18 levels, which indicates the trade does not expect the domestic market to be flush with sugar any time soon.