'Critically low' stocks to keep sugar prices supported, says ISO

22.02.2017

Market dynamics "remain constructive" for sugar prices, the International Sugar Organisation said, despite cutting its forecast for the world production deficit, despite a hefty downgrade to the Indian output estimate.

The intergovernmental group lowered by 324,000 tonnes, its estimate for the world sugar production shortfall in 2016-17, on an October-to-September basis, with a downgrade to its consumption estimate more than offsetting a cut to world output expectations.

Even so, at 5.87m tonnes, the extent of the deficit – which will take to a "massive" 11.1m tonnes the drop in world inventories over two seasons – "augurs well for continuing strength in market prices", the ISO said.

Despite the downgrade to the deficit forecast "the ISO still believes that fundamentals remain constructive for world market values in the remaining months" of the season.

'Critically low stocks'

Indeed, the ISO cautioned over the downbeat price forecasts offered by many commentators.

Analysts on average expect New York futures to average 18.60 cents a pound on a spot contract basis in the October-to-December quarter, according to FocusEconomics research, compared with the 20.80 cents a pound at which the March contract, the current spot lot, closed on Tuesday.

"Any easing of world prices in reaction to expectations of a possible return of the world supply and demand to a modest statistics surplus in 2017-18 may be muted," the organisation said.

Besides a "critically low level of stocks" left at the end of this season, the ISO also flagged an "extremely tight" trade balance, with the amount of sugar available for export, at 58.25m tonnes, less than 160,000 tonnes ahead of expected import needs.

India downgrades

The ISO's revisions to estimates for world sugar supply and demand in 2016-17 factored in downgrades to both sugar output and demand in India – the top consumer of the sweetener and second-ranked producer.

Expectations for output suffered a particularly large cut, of 2.5m tonnes to 21.0m tonnes - with the organisation lifting by 500,000 tonnes to 2.0m tonnes its forecast for the country's imports this season to help make up the shortfall.

That would see India – whose sugar output has been hurt by the dent to cane output in Maharashtra from two drought-affected harvests - return to being a net sugar importer in 2016-17, of 500,000 tonnes.

Last season, India reported net sugar exports of 1.15m tonnes, on ISO estimates.

Brazil, China, Russia, US upgrades

However, on production, the India downgrade was largely offset by upgrades to output in other countries.

The ISO estimate for sugar output in Brazil, the top producing country, was lifted by 775,000 tonnes to 38.78m tonnes, with the figure for US volumes raised by 745,000 tonnes to 8.45m tonnes.

Russia's sugar output in 2016-17 was restated at 6.03m tonnes, a 425,000-tonne upgrade, while the figure for Chinese production was upgraded by 250,000 tonnes to 9.90m tonnes.


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