From Rabobank

A Rabobank report suggests that the global sugar market will continue its surplus into 2014.

In the report, published by the bank’s Food & Agribusiness Research and Advisory team, the global sugar market continued its downtrend over the last few months. NY No. 11 prices reached USc 16.21/lb. in mid-June, a level not seen for three years.

Projections for most of the key producing countries are heading towards meeting or exceeding expectations for the 2012/13 international crop year. The current supply/demand balance features the largest surplus in the last 15 years.

Preliminary projections estimate the surplus to be around 3.7 million tonnes of sugar, suggesting no near-term respite for international sugar prices.

 “Although the estimated 3.7 million tonne sugar surplus is far from the 12 million tonne surplus projected for 2012/2013, it nevertheless implies a further rise in global stock levels and no decline in the global stocks/consumption ratio,” Rabobank sugar analyst Andy Duff said.

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According to Rabobank, Northern Hemisphere prospects are weighing on sugar prices. Whereas a large harvest in Brazil’s Center/South is likely to be priced into today’s sugar market, it is only recently that Northern Hemisphere producers have started to disclose projections for their 2013/2014 crops.

With only modest declines forecast for India and China, and a possible increase in output suggested for Thailand, the preliminary outlook for several of the Northern Hemisphere's Asian heavyweights suggests no prospect of substantial reductions in sugar output.

Meanwhile, the recent strengthening of the U.S. dollar is likely to reduce dollar-denominated commodity prices across the board. The weakening of the Brazilian real versus the U.S. dollar also affects the attractiveness of ethanol in relation to sugar, lowering the level of the world sugar price to a point at which millers begin favoring ethanol over sugar production.

In the short term, a weaker Brazilian real makes sugar production more attractive than ethanol, Rabobank says, which could have knock-on consequences for the percentage of cane that Brazilian millers allocate to sugar and ethanol respectively.

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