Rabobank raises expectations for 2017/18 sugar surplus

Published: 10/10/2017, 7:23:25 AM

Rabobank raised its forecast for the world sugar output surplus in the newly-started season, thanks largely to improved estimates for Thailand and for Europe - where it backed ideas of weaker prices to come, according to Agrimoney.

The bank raised to 4.5 million tonnes, from 2.7 million tonnes, its estimate for the world production surplus in 2017/18, which began at the start of this month.

The revision reflected in part improved expectations for output in Brazil, the world's top grower, where the bank quoted an assessment from Unica, the cane industry group, that output in the key Centre South region is "now projected to exceed last season's 35.6 million tonnes".

Initially, Unica had forecast output of 35.2 million tonnes from the Centre South, which is responsible for more than 90% of Brazil's total sugar output.

However, Rabobank also raised by 800,000 tonnes to 12.6 million tonnes its forecast for Thai sugar output in 2017/18, noting an upgrade of 7 million tonnes to 110 million tonnes in the country's official estimate for its cane crush during the season.

Thailand now looked like producing an exportable surplus of 8.9 million tonnes of raw sugar.

The forecast for European Union sugar output this season was raised by 900,000 tonnes to 20.5 million tonnes, up an "astonishing" 3.8 million tonnes year on year.

The increase will be led by growth of more than 2 million tonnes in output in both France and Germany, to 5.8 million tonnes and 4.5 million tonnes respectively.

Given the size of the increase, "we may expect a significant impact to the market, both inside and outside the EU," said Andy Duff, Rabobank global strategist, sugar.

Indeed, the bank forecast some erosion in the premium of EU white sugar prices of more than 50% to futures, according to latest data from the European Commission, which show white sugar priced in July at EUR501 a tonne.

"Going forward" the premium of EU sugar prices to futures will move within a "narrower range", Rabobank said.

Considering the "glut" of EU sugar, "which at current prices does not seem attractive to export, a further drop in the EU average price in the coming months can be expected", Duff said, comments in line with those last week from US Department of Agriculture staff.

The EU will indeed end up raising its exports, "as the additional supply will simply force producers to export more".

The bank, on world prices, said that current values appear to include "little in the way of risk premium", given that a world production surplus of 4.5 million tonnes was "not large".

However, it also noted that events such as hurricane damage in Cuba, and another round of Indian imports, had not injected "a little adrenaline into the market", as might have been expected.

"Whatever potential these developments had to spark the market may well have been offset by expectations of higher exports from Pakistan and diminished Chinese imports," Duff said.