The International Sugar Organisation raised its forecast for the world sugar production deficit this season, and forecast an ever bigger shortfall in 2016-17 – but cautioned against ideas of a squeeze in available supplies for now.
In a report which offered some sustenance both to sugar market bulls and bears, the intergovernmental group lifted its forecast for the world production deficit in 2015-16, which started last month, by 1.04m tonnes to 3.53m tonnes.
The upgrade in the shortfall, the first in six years, reflected in the main a cut to production prospects in the European Union, by 520,000 tonnes to 14.98m tonnes, and India, by 745,000 tonnes to 27.0m tonnes, with a smaller downgrade to the estimate for Ukrainian volumes too.
The estimate for output from Brazil, the top producer, was kept at 35.59m tonnes, a rise of 2.8m tonnes year on year.
‘Deficit phase’
The organisation did not detail the reasoning behind its downgrades.
However, they follow a drop in plantings in the European Union, where dry weather has cut yields in some countries such as France too, with a weak monsoon depressing expectations for India, while weaker prices until recently have provided a broad economic disincentive.
And the ISO, in “preliminary thoughts”, forecast an ever bigger deficit next season, of “about” 6m tonnes, in 2016-17.
“Assuming normal weather conditions in the coming 21 months, only a limited season-on-season increase in global output is forecast, while global consumption may grow by about 3m tonnes,” the ISO said.
These dynamics would herald “the continuation of the deficit phase in the world sugar cycle for at least one more season”.
‘Well balanced’
However, the ISO also downplayed ideas of such a shortfall translating into a squeeze in supplies, saying that “no shortages of physical supply to the world market are currently foreseen.
“Global export availability and import demand appear well balanced,” at about 57m tonnes over 2015-16.
“It still seems possible to cover currently unforeseen production shortfalls by stocks accumulated during several seasons of global surplus.”
‘Key question’
The organisation also said that India – whose export prospects have become increasingly discussed as the sugar price recovery over the past month has put them closer into market competition – is “likely to continue with large scale shipments to the market” this season.
And it raised a question over China, the top importer, extending purchases which have been spurred largely by the discount of international prices to domestic ones, rather than by a physical market shortage.
“During the past three seasons, China continued to import much beyond its requirements… soaking up a significant chunk of the global surplus which would otherwise have pressured international prices even further.
“A key question is how long China can keep maintaining huge surplus stocks.”
‘Technical trading’
The comments came amid a topsy turvy day for sugar futures which – having soared nearly 7% in the first two sessions of the week to a nine-month high, before losing most of those gains on Wednesday – oscillated in and out of positive territory.
“It looks like largely technical trading,” a London soft commodities analyst told Agrimoney.com.
“What the fall in the last session didn’t do was damage the technical picture too much. If the sugar market can hold its nerve, it might find some fresh buyers.”
Raw sugar futures for March stood 0.7% higher at 14.74 cents a pound in midday deals in New York.
