Sugar at 2-month low as global glut continues

Agricultural , Brazil , Sugar Nov 23, 2013 No Comments

SugarAfter a temporary jump last month due to Copersucar‘s terminal facilities fire, the raw-sugar futures fell 0.6% Friday, their lowest level since Sept. 19, to end at 17.40 cents a pound on the ICE Futures U.S. exchange as dry weather allowed Brazilian mills to process plenty of cane, adding to a global glut.

Stockpiles will increase 0.5 percent to 43.379 million metric tons in the marketing period ending in 2014 for most countries from a year earlier, the U.S. Department of Agriculture said today in its November 2013 Sugar World Markets and Trade report . That topped a May forecast by 13 percent. Thailand’s output will climb to a record 10.9 million tons, up 9 percent from a year earlier and 3.8 percent more than estimated in May.

The International Sugar Organization (ISO) also raised its estimate for the world sugar surplus in 2013-14 even as it noted that the next season would mark the first output deficit in five years.

The ISO, in a quarterly briefing, lifted by 228,000 tonnes to 4.73m tonnes its estimate of the extent to which world sugar output will exceed consumption this season.

However, with expectations for Indian and Thai production on the increase in recent weeks, the ISO raised by 645,000 tonnes to 181.5m tonnes its forecast for world output in 2013-14, while making a small downgrade to ideas on consumption.

This year’s 11% drop in sugar prices, the third straight annual decline and the longest slump in 21 years, has already prompted Brazilian mills to produce more ethanol. Since the season began in April, mills in the central-southern part of the country have dedicated 54.6% of their cane to making ethanol, compared with almost a 50-50 split between sugar and the biofuel last year, according to Unica data.

In North America, the USDA said Friday it sold sugar to domestic ethanol makers at an almost 90% discount.

The sale was the third this year under a government program outlined in the 2008 farm bill that aims to boost prices for the sweetener.

The program requires the agency to buy sugar and sell it to domestic biofuel producers if it believes sugar processors might default on their government operating loans. When processors default, they forfeit sweetener that was put up as collateral. The most recent sale took nearly three-quarters of the sugar in the USDA’s possession off its books after processors defaulted on loans at the end of September.

Sugar mills in major producing countries Brazil, India and China are struggling with tumbling margins, falling prices and high production costs. Closures of more than a few mills appear to be a near-certainty, highlight both Czarnikow and Macquarie Commodities Research in their recent reports.

This is especially true in India‘s Uttar Pradesh where sugar mills have said they cannot pay the state-fixed minimum price to cane-growers and have suspended operation. The mills, which are struggling with losses and arrears to farmers, say they would rather shut down than buy sugarcane at a price that is unviable. The key to the whole imbroglio is the state-advised price (SAP) of sugarcane. Unfortunately, what ought to be purely administrative work has become a political decision. While farmers demand a high price for cane, the industry wants low price to make the mills viable.

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Rod Sherkin

Rod is a former senior executive, responsible for Purchasing, for both Pillsbury and Ball Packaging back in the 80’s and 90’s. Since then, he has continued to work in the Purchasing field as both a consultant and founder of the website Propurchaser.com.

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