The world sugar market is poised for the first of what could be “several years” of production shortfall, as the poor finances of many mills finally hits home, Green Pool said.
The Australia-based analysis group, the day after lifting its forecast for the global sugar output surplus in 2014-15 to 1.73m tonnes, said in its first forecast for next season that the market faces a deficit of 5.02m tonnes.
The forecast, one of the first industry estimates for 2015-16, reflected in part an expectation of a further rise in consumption, which Green Pool sees rising by 1.7% to 181.6m tonnes.
However, the group also flagged the dent to production from low prices engendered by – on Green Pool estimates – five successive years of output exceeding demand.
“There has been sufficient impact on global sugar producers of lower prices to have impacted production capacity and the outlook for many crops,” the group said.
Green Pool said that for Brazil, the top sugar producing country, it was “beginning to have serious concerns about the state of the cane crop”, acknowledging that an initial estimate of a 570m-tonne harvest next season for the important Centre South region, up 1m tonnes year on year, may prove optimistic.
“It isn’t necessarily drought that worries us, but more that the crop is on average older, and that care and maintenance – by an industry which in some quarters is in poor financial shape – will have suffered.”
Brazilian Centre South sugar output was forecast falling 1.54m tonnes to 30.43m tonnes, reflecting an increased proportion used to make ethanol, for which government tax and blending reforms are boosting demand prospects.
‘Mills facing bankruptcy’
India, the second-ranked producing country, will see a drop of some 800,000 tonnes to 234.7m tonnes in output, weighed by the pressure on mills’ margins from elevated cane prices, set by the state, and falling sugar values.
Green Pool highlighted the “poor financial state of mills”, for which prospects may only deteriorate if the government fails to deliver on an idea of subsidising sugar exports.
Meanwhile China will see a 100,000-tonne drop to 11.6m tonnes in output, lifting its domestic production deficit to 4.2m tonnes, again against a backdrop of cash-strapped mills.
Beijing efforts to underpine cane prices for producers, while depressing sugar prices for consumers, “has resulted in mills facing bankruptcy”.
In sugar beet, Associated British Foods earlier this month unveiled the closure of a further two processing plants in northern China.
First of ‘several’?
The extent of the financial difficulties in sugar provokes ideas that pressure on sugar production may prove long-term.
“The poor financial state of much of the key Cetnre South Brazilian milling industry, as well as that of India, China and perhaps parts of Mexico, leads to a firmer likelihood that we are about to embark on the long awaited swing into several years of global sugar deficit,” Green Pool said.
(Source – http://www.blackseagrain.net/novosti/sugar-markets-faces-first-of-several-sugar-deficit-years)