The recovery in sugar prices has boosted prospects for sector profits at Associated British Foods – but not yet, the owner of industry assets from the UK to China said, cautioning that that benefit will take time to wash through.
Sugar prices, as measured by spot London futures in whites, have recovered by 23% over the past four months, boosted by expectations of global sugar production in 2015-16 falling short of consumption for the first time in five years.
And the revival has spread to the regulated markets in China and the European Union, key markets for Associated British Foods.
“A tightening of EU and Chinese stock levels has strengthened prices in those markets,” the UK-based group said.
‘End of the downturn’
However, the benefit will take some time to boost profits at regional operations given that ABF is still, in Europe, supplying customers under deals struck at lower values.
“With most EU contracts for the current year already agreed, there will be no material impact on the profitability of our European sugar operations until next year,” ABF said.
The delay leaves the European businesses still suffering the hangover from a market downturn worsened in the region by the prospect next year of the removal of production quotas.
The prospect of extra supplies ahead has given buyers negotiating power in the run-up to the reforms.
Nonetheless, ABF said on Thursday that “there is increasing evidence that our expectation of stability in sugar profit ahead of EU quota removal in 2017 will be realised”.
Less sweet for beet
Prospects for sugar group profitability in Europe have also been enhanced by the region’s reduced beet crop in 2015-16, after a record level of output above quota levels last season meant a build-up of stocks .
Suedzucker, ABF’s German-based rival, said on Wednesday said that “beet sugar production throughout the EU is expected to decrease significantly” in 2015-16, while flagging a downside to the reduced harvest in meaning a reduced processing campaign and higher sugar production costs per tonne.
Suedzucker said that its own beet crushing campaign would fall to 90 days this season, from 127 days in 2014-15.
ABF said that in the UK, where it owns British Sugar, the beet crop was poised to plunge to “just short of” 1.0m tonnes, from the record 1.45m tonnes last season, thanks to reduced area and yields.
“Operating performance has remained very strong across all sites with the campaign expected to be complete by early February,” the group added.
ABF flagged a more mixed performance for its operations in China, where a record beet supply has prompted a “strong” performance at its two northern processing plants, but with the cane operations further south faring less well.
“In the south, production levels are lower due to a combination of a smaller area assigned to the cane crop, excessive rain affecting cane maturity and poor sugar content within the cane,” the group said.
In southern Africa, where ABF controls regional giant Illovo Sugar, the group said that setbacks from weaker production, thanks to drought, and from currency devaluation had been offset somewhat increased prices.
The group also noted a mixed performance at its key Primark clothing retail division, which achieved a “strong” autumn but a soft run-up to Christmas, as mild weather slowed sales of the likes of coats and scarves.
ABF share stood 1.0% lower at 3011p in morning deals in London.
(Source – http://www.agrimoney.com/news/abf-increasingly-confident-of-end-to-eu-sugar-downturn–9183.html)