Will sugar futures prove ag's worst performers in 2018 too?


Sugar futures fell hard in 2017, proving the worst performance of the major agricultural commodity contracts.

New York-traded raw sugar futures tumbled by 22% - reversing 2016’s gains almost exactly - while London white sugar plunged by 25%, undermined by the prospect of a return to a world production surplus.

Besides unexpectedly strong output estimates for many major producers, such as the European Union and India, consumption ideas took a dent from health concerns – largely, but not universally, in Western nations.

How will these dynamics play out in 2018? Will strong output remain a market feature? Or will the dip in prices below cost of output for most producers stem the flow?

Leading commentators give their views.

ABN Amro

“Current sugar prices are mainly driven by the supply outlook for the 2017-18 season. The International Sugar Organization and the US Department of Agriculture… both expect demand and supply to grow, but with supply outpacing demand. T

“The upshot is that the sugar price will come under considerable pressure in the coming period and is likely to decline.

“However, rising ethanol production in Brazil may ease some of this pressure. Drivers in Brazil with an FFV (Flex-Fuel-Vehicle) are increasingly opting for ethanol now that petrol prices have risen by 20% since July.

“In addition, the lower ethanol price may prompt Brazil to add more ethanol to its fuel mix.

“This would further increase demand for ethanol, but most likely not enough to cancel out the fall in the price of sugar resulting from the expected surplus.”

Mike McGlone, Bloomberg Intelligence senior commodity strategist

“Sugar was a leading drag on agriculture performance in 2017, which sets it up for the opposite in 2018

“Raw-sugar futures appear to have bottomed. Initial target resistance of about 17 cents a pound approximates the top of the breakdown consolidation area of April-May and the 100- week moving average.

“This mean, which turned higher in 2016, marked good resistance in the 2013-15 bear market.”

“Sugar, appears to be carving out a higher low. Slowly turning sugar favours continued recovery on the back of flattening futures curves and a good discount from the 2016 high.”


“Stronger ethanol pricing, on the back of rising global crude benchmarks, helped to lift ICE sugar prices through the October-to-December quarter of 2017, but we expect further price strength to remain subdued through the first half of 2018 as harvests in Asia and Europe peak.

“But in 2018-19, the market may begin to look more balanced, with the major balancing factor being Brazilian production.

“We expect the sugar mix in Centre South Brazil to fall to 44% next year, with downside risks should current sugar/ethanol spreads persist, which could mean a nearly 3m tonne, tel quel, decrease year on year in raws output.

“Elsewhere, the production increases seen in 2017-18 should not be sustained in 2018-19, as they have been largely driven by one-time factors - recovery from drought in Asia and deregulation in the European Union.

“Consumption growth, however, should continue. All things considered, we expect only a modest surplus in 2018-19 which should support prices through the second half of 2018 and 2019, though falling crude prices during 2019-20 may damp relative price cheer.”


“The expectation of a market surplus [in 2017-18] is dampening price performance – especially since the figures for the 2016-17 deficit were downwardly corrected several times in the past, to only just a little over 1m tonnes, and initial predictions of a further surplus are already being issued for the 2018-19 season.

“There are no signs of tighter market supply in the foreseeable future, in other words.

“Our exchange rate specialists expect a continued moderate depreciation of the real during 2018. Thus quite a number of factors point to persistent weakness of the raw sugar price at present.

“That said, if the shift towards ethanol is maintained by Brazilian sugar mills, the proportion of sugar remaining low for any prolonged period, this is likely to shore up the price.

“The predictions for Brazilian production in 2018-19 lack any clear direction because the assumptions about the sugar cane crop and how it will be divided between sugar and ethanol diverge considerably.

“We anticipate a raw sugar price of 15 cents per pound in the fourth quarter of 2018.”

Goldman Sachs

“Unfavourable weather for harvesting and higher energy prices over the last few months (incentivising ethanol over sugar) now points to lower than expected Brazilian sugar output.

“But elsewhere, production still looks strong for 17-18. Indian sugar production is expected to show strong growth, recovering from last year’s drought and the effects of demonetization policy.

“Due to policy reform, European Union sugar output is also expected to rise considerably.

“The net effect of these strong supply trends is still likely to be a new record in global sugar output in 2017-18. However, we expect that strong global growth over the next year will also see rising demand, helping to keep the market broadly balanced.

“We see prices remaining broadly flat, around 14 cents a pound over a 3, 6 and 12 month horizon.”


“The current prices are below cost of production in many sugar producing countries. However, we only expect a muted supply-side response, given the level of protectionism in areas like the EU, Pakistan, China and India, among many others.

“A drop in sugar output in Brazil Centre South is likely in 2018-19. The most efficient producer will likely see no change in total area next year, but there could be a slight cut in the harvested area due to higher renovation rates.

“A slight drop in both volume and sugar cane content of cane is also likely, as the harvested cane will, on average, be older.

“Stellar domestic prices in China and India should incentivise good production levels in 2018-19. We also – very preliminarily – expect a further expansion in Thailand, albeit only a small one. As regards the EU, we expect little change in [beet] area.

“In our base case, we expect prices to rise above 15 cents a pound in 2018, but we still think they will remain slightly below the ethanol parity.”

Societe Generale

“By our estimates, global stock-to-use should decline from 22.0% in 2016-17 to 20.5% in 2017-18.

“This would be the lowest figure since 2009-10, primarily due to drawdown of inventories in India, China and the EU.

“This might appear bullish, but a decline in inventories in these countries is unlikely to result in increased imports amid our expectations of a recovery in production in 2017-18.

“Lack of import demand from these major sugar-consuming regions should keep the export markets fairly well supplied and negate the bullish fundamental of global stocks-to-use being at such low levels.

“Our 6 month and 12 month forecasts for sugar are 14.4 cents a pound and 14.5 cents a pound respectively.

“This is slightly bearish as these forecasts are currently lower than the forward curve and below the sugar-ethanol parity floor.

“Indeed, Brazil’s sugar-ethanol parity floor should remain a key driver of sugar prices given the substantial amount of unhedged sugar production for 2018-19 in Brazil.”


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