High world sugar prices could turn EU 'dream' into a 'nightmare'

11.10.2016

The rally in world sugar prices, should it persist, threatens to turn the "dream" for European Union buyers of the sweetener into a "nightmare", as supplies are dragged abroad, Rabobank warned.

EU sugar purchasers appear to believe that deregulation being introduced next year - which will see the bloc ditch the likes of output quotas and minimum beet prices, but gain free access to world export markets – will usher in plentiful and competitively-priced supplies of the sweetener, the bank said.

"At the moment, the market and its stakeholders appear to have a dream scenario in mind, one in which the larger supply of EU sugar after October 2017 will lead to a low, or lower, EU sugar price," the bank said.

It flagged a forecast from the European Commission itself that EU sugar prices will stabilise in coming years, at levels just above the bloc's reference price of E404.40 a tonne.

'Nightmare scenario'

However, the ditching of EU production and export quotas "could backfire" on buyers, Rabobank warned, cautioning of the drain that high sugar prices could put on the bloc's supplies.

Instead of showing a supply surplus of some 600,000 tonnes, in the case of world sugar prices remaining below EU ones, growth in global values to levels above those in the bloc could create an annual deficit of 1.7m tonnes.

After the market liberalisation, "EU sugar producers can choose where they want to sell their sugar, in the EU or beyond."

A "nightmare scenario" could see "amplified exports", leading to "regional sugar shortages or tighter national supply within the EU".

While this squeeze is "unlikely" to cause shortages in major sugar beet-producing countries, "demand from outside the beet belt may even drive up prices considerably".

'Too good to be true'

The bank advised buyers to "wake up" and start implementing measures such as forward hedges, or physical supply contracts, in an effort to secure their sugar.

Raising sugar storage capacity could be an option for some users, or turning to alternatives such as corn-based sweeteners.

"The general assumption that abolishing the EU sugar quota as of October 2017 will only have positive effects for sugar buyers is too good to be true," the bank said.


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