World sugar surplus shrinking, U.S. less clear

by Ron Sterk
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DANA POINT, CALIF. – Although the global sugar supply remains in excess, the surplus is shrinking, while the U.S. supply picture appears less clear, according to speakers at the International Sweetener Colloquium in Dana Point on Feb. 24.

“Another year of surpluses, both raw and refined, is going to weigh on the market,” said Tom Secretan of ED&F Man, who predicted a small raw sugar surplus in 2014-15, with refined sugar supplies tightening more than raw sugar supplies.

Low global raw sugar prices have led to overstocking in major importing countries, including the United States, the European Union, China and India, Mr. Secretan told attendees at the Colloquium, while stocks have built up in major producing countries with the exception of Brazil, while weak currency values, especially in Brazil, have encouraged sugar exports.

The result will be weak global prices in the short term, Mr. Secretan said, but prices will have to increase in the long term to cover increasing production costs if global sugar output is going to meet increasing global demand, especially in Asia and Africa.

The outlook for sugar prices in the United States was somewhat more bullish than in the past year, but with considerable uncertainty, Frank Jenkins, president of JSG Commodities, told attendees at the Colloquium. Although the U.S.D.A. has projected considerably less sugar supply this year in the United States and Mexico than in 2012-13, when oversupply resulted in the first U.S. sugar loan forfeitures in a decade, Mr. Jenkins sees the U.S. market still in oversupply and predicts sugar loan forfeitures will occur again this year.

While any outlook for the U.S. sugar market must include Mexico because of the duty free trade between the two countries under the North American Free Trade Agreement, Mr. Jenkins said the combined NAFTA market can no longer be viewed without considering the global sugar market. The current spread between domestic and world raw sugar futures prices of over 5c a lb will encourage imports (with freight costs adding only 2c to 4c a lb) from the world market, thus putting the United States into oversupply, Mr. Jenkins contended.

But much uncertainty about Mexican production and exports clouds the U.S. forecast. After record production in 2012-13, forecasts for Mexican sugar production are considerably lower for 2013-14 due to wet weather early in the harvest season, and some, including Mr. Jenkins, expect output to decline further from the latest forecasts of around 6.4 million tonnes in the coming months, depending on how long the cane harvest can be extended.

While record large U.S. imports of Mexican sugar in 2012-13 have been cited as the primary factor creating the U.S. oversupply, Mexico intends to export from about 900,000 tonnes of its production to markets outside the NAFTA region, according to trade sources and speakers at the Colloquium. Whether that volume can or will be achieved may affect current year shipments to the United States.

Although he expects loan forfeitures in the current year, Mr. Jenkins also sees more upside than downside potential for sugar prices this year, unlike last year when the market was overwhelmingly bearish, both domestically and globally.
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