China is poised, for the first time, to fall behind Thailand in sugar production, US officials said, as they extended a wave of downgrades to output expectations, and restated forecasts for record imports.
China will produce 10.58m tonnes of sugar in 2015-16, which started this month, the US Department of Agriculture’s Beijing bureau said, trimming 240,000 tonnes off their previous estimate.
The estimate, would represent a drop of 420,000 tonnes year on year, and demote China to fifth in the world production rankings.
“If current forecasts are correct, Thailand will supplant China as the fourth largest producer of sugar in 2015-16 for the first time,” the bureau said.
And in fact, the bureau is one of the more upbeat commentators on Chinese production hopes, although care has to be taken when comparing directly sugar estimates, given the range of seasons and sugar measures that are used by different analysts.
Rabobank on Monday forecast a 10% drop in Chinese sugar production, flagging the potential for lower acreage, as well as weather setbacks caused by the El Nino.
Since cane, the raw material for more than 90% of domestic sugar output, “is mostly harvested manually in China, rising labour costs have greatly reduced margins for cane production”, the bank said, also noting pressure from lower world values.
“As such, sugar cane growers are once against switching to better-paying competing crops like eucalyptus.”
Separately on Monday, the International Sugar Organisation, was even more downbeat, saying that “preliminary estimates” for the new season “are so far sharply down, at about 9m tonnes compared to 10.5m tonnes produced in 2014-15”.
‘Even higher level of imports’
The reduced expectations for Chinese sugar production are seeing the country, already the top importer, looking at even bigger purchases in 2015-16, with traders attracted by high domestic values, supported by elevated, if falling, supported prices for cane growers.
Rabobank forecast “an even higher level of imports” for the new season than in 2014-15, when buy-ins hit 4.33m tonnes.
The USDA bureau stood by a forecast for imports of a record 5.5m tonnes in the new season, well ahead of the 1.95m tonnes of tariff-rate quota.
“Domestic sugar prices are still roughly double international prices, making imports price competitive even with an out-of-quota tariff rate of 50%,” the bureau said.
“The large price gap and tight domestic supplies are expected to keep imports strong into the foreseeable future.”
‘Abandoning sugar cane’
The bureau’s downgraded forecast for Chinese sugar production reflected too ideas of a drop in cane area, driving production down 8m tonnes to 90m tonnes.
“Since 2011-12, the [state guaranteed] floor price for sugar cane has dropped by more than a quarter, while production costs are estimated to have nearly doubled, largely due to higher labour costs.
“Farmers have increasingly been abandoning sugar cane and switching to specialty crops to increase farm income.”