World sugar stocks nearing ‘historically low levels’

World sugar stocks may be nearing “historically low levels”, after a drawdown forecast at 13m tonnes over two seasons, US officials said, forecasting a squeeze in China will drive imports to a record high.

The US Department of Agriculture, in its first forecast for world sugar supply and demand dynamics in 2016-17, forecast a drop in global stocks over the season by 4.94m tonnes raw value.

Following a drop of 8.0m tonnes in inventories over 2015-16, that would drive stocks “to the lowest level since 2010-11” – during which New York raw sugar futures touched 36.08 cents a pound, which remains the highest price of the past 35 years.

The USDA signalled that the recent recovery in prices was justified this time too.

“Market returns are needed to provide incentives for producers to catch up with demand,” the department said.

On a stocks-to-use basis – which in comparing inventories with consumption gives a more comparable measure of the availability of supplies, and is a key measure of price potential – inventories will end 2016-17 at 18.9%, tighter than in 2010-11, and the third lowest figure on records going back to 1959.

‘Drought conditions’

In fact, output in Brazil, the top producing country, will rise by 2.42m tonnes to a four-year high of 37.1m tonnes in 2016-17, on an April-to-March basis, “on favourable weather and a lower percentage of sugar cane being converted to ethanol”.

Mills, which can process cane into either ethanol or sugar, will convert 57% of crop into biofuel, compared with 59% last season.

However, output in second-ranked India will drop by 2.2m tonnes to a seven-year low of 25.5m tonnes, falling well behind consumption, hurt by poor weather.

“Drought conditions encouraged farmers to keep existing cane in production longer rather than planting new cane,” the USDA said.

“With higher consumption and lower production, stocks are expected to be down 18%.”

Cane vs bananas

Meanwhile, output in China will hit a 16-year low of 8.23m tonnes, dented by the knock-on effects of government subsidy reforms.

“Over the last couple of years, higher land and labour costs and the cancellation of minimum purchase prices in Yunnan, Guangdong, and Hainan provinces have resulted in growers switching to other crops such as tobacco and bananas,” the USDA said.

This will help lift China’s sugar imports by 1.2m tonnes year on year to a record 7.9m tonnes in 2016-17, on an October-to-September basis.

While this is well above the 1.95m tonnes China allows in under tariff-free quota, elevated domestic prices “make imported sugar price competitive even with an out-of-quota tariff rate of 50%”, the USDA’s Beijing bureau said in a report published earlier this week.

And some 1.5m-2.0m tonnes of sugar – believed produced in India and Thailand, and transported via Myanmar or Vietnam – -is estimated to have been brought into China by smugglers, avoiding the duty.

“China shares an extensive jungle border with Myanmar and Vietnam, which makes it difficult to stop smuggling,” the bureau said.

‘Historically low levels’

While the USDA forecast world sugar output rising by 4.4m tonnes to 169.3m tonnes in 2016-17, that would still be well below the average 173.7m tonnes recorded over the previous five years.

It would also fall short of consumption, pegged at a record 173.6m tonnes.

“The rising pace of global consumption has been sustained by drawing down stock levels in recent years.

“Consequently, stocks are approaching what appear to be historically low levels.”

The data follow forecasts from the consultancies such as Green Pool and Platts Kingsman of a further sugar output shortfall in 2016-17, although caution should be maintained in making direct comparisons between analysts given that many use different marketing years.

The USDA’s data are based on an amalgam of local marketing years.


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