Threat of further Indian subsidies weighs on sugar price

The Global Sugar Alliance has called on India to drop its controversial sugar subsidies, adhere to international trade rules, and meet the obligations and commitments it has made as part of its membership of the World Trade Organisation (WTO).

The Global Sugar Alliance, which represents 85% of the world’s cane sugar exporters, believes the world sugar market does not need India’s threat of another round of sugar subsidies, which continue to depress the world sugar price, imposing an enormous cost on the world’s most efficient sugar producers.

Global Sugar Alliance Chairman and Queensland Sugar Limited (QSL) Managing Director, Greg Beashel said Global Sugar Alliance members are fair traders who abide by their WTO obligations and as a respected country with its own high standards, they expect India to do the same.

“As demonstrated 15 years ago, after the removal of European Union sugar export subsidies, world sugar prices quickly rise towards fair value when export subsidies are removed. The same will occur when India abandons its sugar subsidy program,” Mr Beashel said.

Global Sugar Alliance members have met and reaffirmed their full support of the case Australia, Brazil and Guatemala have taken in the WTO to remove India’s export subsidies and trade-distorting domestic price supports which violate India’s commitments to the world community.

“One factor underpinning the recent strength of sugar prices has been the delay in India’s subsidy announcement,” Mr Beashel said.

“Without subsidies world prices need to rise to a level that would allow India to export commercially and fairly. We would welcome India’s subsidy-free participation in the world market.”

News that WTO processes are recommencing after significant COVID-19 interruptions is welcome. Now looking forward to a swift resolution of the case that Australia, Brazil and Guatemala have taken in the WTO, the Global Sugar Alliance calls on India to consider alternative, non-trade-distorting solutions to deal with its subsidised surplus sugar production, such as hastening the development of its ethanol market.

Executive Director of The Brazilian Sugarcane Industry Association (UNICA), Eduardo Leão de Sousa said Brazil had been working closely with India, exchanging ideas and technology to contribute to the development of an Indian ethanol industry, based on Brazil’s almost 50-year experience using ethanol as fuel on a large scale.

“This biofuel will help to improve air quality in India’s major cities, reduce the country´s greenhouse gas emissions and reduce India’s reliance on imported oil,” he said.

“Moreover, it will offer India a strong, viable outlet for its surplus sugarcane, providing a market solution for its sugar industry and cane growers, without adversely affecting the national and international sugar markets.”

Leopoldo Bolaños, International Trader, Guatemalan Sugar Association said Improved trading conditions are in everyone’s interests. We encourage India to comply with its WTO commitments.

Sandra Marsden, President, Canadian Sugar Institute India’s sugar supports have set agricultural trade reform back, at a time when the world economy is struggling under the weight of increased protectionism. It is in all of our interests that these supports, along with other distorting measures in the world sugar market, are removed.

Vibul Panitvong, Chairman of the Executive Board, Thai Sugar Millers Corporation said all Global Sugar Alliance members are urging our governments to work together as a matter of urgency to solve the India sugar dispute and strengthen the world sugar trade.

Mr Beashel said the Global Sugar Alliance’s priority was to secure a world in which sugar could be traded freely across regional and global markets.
“Eliminating India’s export sugar subsidies and complying with its international obligations will be a good place to start,” he said.

QSL sales unaffected

Australia’s largest sugar marketer, Queensland Sugar Limited (QSL), believes any ban by China on Australian sugar exports would be a concerning development for the industry but was unlikely to negatively impact QSL growers’ sugar returns. 
QSL General Manager Marketing Mark Hampson said China was not traditionally a large market for QSL and no shipments were due to be loaded for China.
“At the moment, stronger returns are available in other Asian markets and so that’s where our sales program is focused,” Mr Hampson said.
“As a result, we’re not expecting any impacts on our 2020-Season pool returns should sales into China be restricted, and based on current market dynamics, we remain confident that our measured approach to the Shared Pool valuation stands us in good stead to improve on our present estimate before the end of the season.”

Despite QSL’s current focus on other export destinations, Mr Hampson said it was never good to lose a potential high-value market. 
“QSL, like other agricultural exporters, relies on a number of markets for our goods and so we are doing our utmost to ensure trade flows to China are supported,” he said.
QSL exports approximately 2 million tonnes of Queensland raw sugar each year, with the vast majority of these sales made to refiners in Indonesia, South Korean and Japan.

Global sugar surplus headed our way

The upcoming worldwide cane and beet harvest, coupled with demand uncertainty, will underpin the emergence of a small global sugar surplus in the 2020/21 season, Rabobank says in its just-released Sugar Quarterly report.

With Europe, the US and India about to embark on their respective harvests, and Australia and Brazil wrapping up their seasons, Rabobank’s revised-down 2019/20 deficit projection points to a well-supplied market – and suggests raw sugar prices will continue trading in a USc 11/lb to USc 13/lb range.

Demand during the coming months – if and when pandemic-driven sugar consumption declines appear in trade – would also impact the short-term outlook for sugar.

Additionally, the report said, prices would remain constrained to the downside by Brazil’s ethanol parity (the price below which Brazilian mills switch to cane ethanol production) and to the upside by India’s export parity (the price above which it is feasible for India to export sugar to the globe).

Rabobank anticipates a one million tonne raw-value global deficit for sugar through the 2019/20 (October to September) season, down from 4.3 million metric tonnes previously – the shallow deficit following a particularly strong Brazilian sugar cane harvest, coupled with a projected 1.5 per cent year-on-year fall in 2019/20 global consumption.

However, Rabobank analyst Charles Clack said, opportunity remained, largely thanks to a tighter white sugar supply driving an elevated white premium – at USD 70 to USD 80/metric tonne – and an elevated Far East premium (the premium paid to exporters located near to Asia, where sugar appetite far exceeds regional production).

“These premiums stem primarily from a sharp fall in 2020/21 Thai exports, with sugar output in the region set to fall by 10 per cent year on year following a decline in seasonal acres and an early-season drought,” Mr Clack said.

Global refineries and Asia-focused exporters, he said, would be the main beneficiaries of these premiums.

Speculative buyers were also injecting a fresh dynamic into sugar markets, thanks to the emerging popularity of ag commodities amongst index funds.

“Sugar has been a firm favourite of speculative buyers since June, and broader market sentiment in FX, equities and commodity markets will continue to drive volatility,” Mr Clack said.

Looking ahead to 2020/21, Rabobank anticipates a 0.2 million metric tonne sugar surplus – driven largely by production recoveries across India, Thailand, the EU and the NAFTA area.

“This production rise will however be partially offset by a 1.9 per cent year-on-year recovery in 2020/21 global consumption, assuming a return to more normal consumer habits amid the COVID-19 pandemic,” Mr Clack said.

Australian crush roaring

With the Australian crush continuing at pace – 62 per cent of the nation’s cane had been cut as of late-September – weekly crushing totals were exceeding 1.5 million metric tonnes, matching the peak volumes of previous seasons.

However, Mr Clack said, a rain-delayed lower crush in late July and early August put the crush 10 percentage points behind 2018.

“Operations slowed most in the Burdekin and Herbert regions, before returning strongly and all regions now report the 2020 crush at 60 to 67 per cent complete,” he said.

While cane yields proved strong, the national average of commercial cane sugar continued to disappoint, Mr Clack said, sitting at 13.36 compared to 13.68 in 2019.

“Better results, of over 14, have been recorded in the central, southern and Burdekin regions, with lower results in the north and in NSW,” he said.

Considering these figures, Mr Clack said, Rabobank forecasts 4.3 to 4.4 million metric tonnes of sugar output (raw value) in 2019/20 from 31 million metric tonnes of cane.

The Bureau of Meteorology’s ‘active’ La Nina forecasts, and predictions of a 60 to 75 per cent chance of above-average rainfall across Queensland’s east coast in October also represented a potential risk to the Australian crush – late-season rainfall resulting in further delays and a drawn-out tail-end of the crush if realised.

Mr Clack said local currency strength and soft world prices would keep domestic prices in the AUD 370 to AUD 380/metric tonne range during the second half of 2020, below the AUD 430/metric tonne five-year average.

However, he said, the Far East premium was expected to remain elevated to draw imports into Asia amid a poor Thai outlook and limited 2021/22 recovery, with Thai premiums currently trading at 250 to 300 points basis against the raw sugar market.

India to maintain sugar export subsidies for third year in a row: sources

MUMBAI/NEW DELHI (Reuters) – India is set to maintain sugar export subsidies for a third year in a row in a bid to reduce surplus stocks and ensure domestic prices don’t fall below a government benchmark, three sources involved in policy making told Reuters.FILE PHOTO: Workers harvest sugarcane in a field in Gove village in the western state of Maharashtra, India, November 5, 2018. REUTERS/Rajendra Jadhav/File Photo

The subsidies are designed to boost exports from the world’s second biggest sugar producer though increased shipments could put further pressure on global prices, which have already fallen more than 10% so far this year.

“Sugar export incentives for 6 million tonnes could be announced before the end of this month,” said a government official involved in policy making who declined to be named.

India approved an export subsidy of 10,448 rupees ($142.20) per tonne in the 2019/20 season which ends on Sept. 30 in a move that helped sugar mills export a record 5.5 million tonnes.

The official said the size of the subsidy for the 2020/21 marketing year starting in October would be finalised at a cabinet meeting after seeking views from the ministry of finance and the ministry of consumer affairs and food.

“Most likely we’ll replicate the kind of support that the government extended to facilitate exports in the current year,” said a second government official, who also declined to be named as he’s not authorised to talk to media.

The ministry of commerce and industry, which would set any subsidy, did not immediately respond to a request for comment.

India needs to export more than 5 million tonnes of sugar to ensure domestic prices don’t fall below a benchmark price set by the government, as a crash in local prices would make it harder for mills to pay cane growers on time, the officials said.

Exporting sugar in the coming marketing year would be more challenging for India as top producer Brazil has been flooding the global market with its surplus sugar, Prakash Naiknavare, managing director of the National Federation of Cooperative Sugar Factories Ltd, said.

India, which is expected to start the new marketing year with carry forward stocks of 11.5 million tonnes, could produce 31 million tonnes of sugar next season, well above expected domestic demand of about 26 million tonnes, Naiknavare said.

Sugar price bounce cause for ‘measured optimism’

For Queensland cane growers who have faced returns equal with, or less than, the cost of production for most of the past 18 months, the upward movement in the world sugar price this month has been very welcome.

Paul Schembri, who has 180 hectares under cane in the Mackay district, said the bounce was cause for ‘measured optimism’.

“We did have a short-lived rally in prices at the start of this year when there was a downgrade in production estimates in areas like Thailand, the United States and Brazil,” he said.

“That assisted growers but generally speaking prices have been depressed for a long time and COVID has really smashed things.”

Mr Schembri, who is also the chairman of Canegrowers Queensland, said rain had disrupted the harvest in the northern region but the growing season had been an improvement on the previous year.

“Drought was still prevalent in southern regions but in the north we had a wetter growing season,” he said.

Along with the low price headwinds and the ever-constant weather concerns, the biggest challenge facing cane growers at the moment was the ‘over zealous nature of governments to regulate’, particularly bureaucratic reef regulations, Mr Schembri said.

Rabobank: Sugar industry looking towards recovery

THE global sugar industry is now looking towards recovery having endured the full brunt of COVID-19’s disruption, according to Rabobank’s latest global Sugar Quarterly report.

World sugar prices are starting to rebound on the back of easing lockdown restrictions and the resumption of the foodservice, with the ICE #11 Raw Sugar futures finishing the third week of June at US12.18c/lb. That’s an almost a three cent recovery from April, when prices dropped to as low as US9.21c/lb.

Prospects are also on the improve in Australia. A favourable season is driving production, elevated 2020 regional premiums helping buoy margins, and prospects of a low Australian dollar bolstering export opportunities, the bank says in its report for Q2 2020.

Rabobank commodity analyst Charlie Clack said the bank had now lowered its forecast for global sugar consumption for the year ending October, from flat to a 1pc decline – largely driven by the pandemic’s impact in countries such as India, Indonesia and Brazil.

As a result, this would see global sugar stocks declining by less than previously forecast, he said.

Rabobank now anticipated a smaller global deficit of 4.3 million tonnes raw value through the 2019-20 (October to September) season, revised from its previous estimate of 6.7mt raw value.

“Looking ahead, we expect consumption to recover from the pandemic and go back to trend growth in 2020-21, resulting in a 1.7pc increase, and for global production to increase by almost 5pc, driven by a recovery in India and North American crops,” Mr Clack said.

We expect consumption to recover from the pandemic and go back to trend growth in 2020-21.

– Charlie Clack, Rabobank

Assessing COVID-19’s impact on global consumption Mr Clack said sugar consumption during COVID-19 restrictions varied across the world and, although food service outlets were now re-opening, demand was unlikely to return to pre-COVID-19 levels in the near-term.

In the EU and UK the loss of demand in the beverage and dairy sectors, and overall negative economic impact on purchases, had weighed heavily on the sugar sector, he said.

Strict COVID-19 restrictions across India had also led to a drop in 2019-20 consumption of 3.4pc, year-on-year.

“While we anticipate a sharp drop in India’s food service sales and consumption in quarter two 2020, this is also a key period for sales of ice-creams, beverages and other sugary snacks,” Mr Clack said.

“Rabobank forecasts a recovery in the 2020-21 season in India as behaviours return to a ‘new normal’.”

In North America, the pandemic appears to have had less of an impact on consumption – with the higher usage of high-fructose corn syrup, rather than sugar, in soft drinks minimising the decline of sugar demand in beverages in the US and Mexico.

Looking ahead, it was broadly agreed that COVID-19 would negatively impact 2019-20 global consumption, but the full extent was very much unknown.

Potential ‘second-wave’ infection events, the longevity of social-restrictions and the severity of a global recession will all play into consumption, as will consumer behaviour,” he said.

Global outlook

Global fundamentals should take higher priority for sugar markets, he said, as the southern hemisphere crush gains pace, and Asian cane crops are underway.

Mr Clack said India’s 2020 monsoon season was on time, and at pace, with the favourable season contributing to predicted increase in production – the report forecasting Indian 2020-21 production at 33.5mt, up 16pc year-on-year, if realised.

Indian exports were also strong, despite port congestion and labour issues.

In Brazil, port congestion was set to ease, better positioning the country to distribute a bumper harvest, he said.

“Dry weather has permitted a flying start for the centre/south harvest in Brazil, and by the end of May, 145mt of cane had been harvested, versus 129mt at the same time last season,” he said.

“As expected, progress to date shows a pronounced swing to sugar production this season, with 46pc of cane going to sugar production over ethanol, versus 33pc last season.”

With the 2020-21 Thai cane crop suffering a poor season due to drought, Mr Clack said the impact was compounded by a likely year-on-year cut in domestic acres, and a lower availability of irrigation water.

As such, he said Rabobank expected Thai sugar output to reach just 8.15mt, down 5pc year-on-year and 47pc from 2018-19.

“Overall, easing Brazilian port congestion, coupled with flowing Australian and Indian raw sugar is forecast to keep 2020 ICE #11 prices confined to the US10.5c-US12c/lb region,” Mr Clack said.

“However, we cannot rule out the influence of energy markets, FX and speculators when looking ahead.”

Australian outlook

With the 2020 crush now underway in northern and central Queensland, with southern and NSW mills scheduled to begin in coming weeks, wet weather delays had dampened early progress in the Burdekin, Herbert and Tully regions.

As a result, crushing pace was some 20pc behind last season and 51pc behind the 2018-19 season. And with above-average rain predicted over coming months a slow 2020 crush – and a late-season finish – was expected, he said.

However, Mr Clack said the favourable season had much improved yield prospects, with Australian 2020 cane production expected to reach 31mt, up 1mt year-on-year.

Australian sugar production was forecast to reach up to 4.4mt, up marginally from 2019.

“While 12-month expectations for the ICE #11 are subdued, below US12c/lb in the 12-month period, demand prospects in Australia’s major Asian export markets – namely Korea, Japan, Indonesia – following COVID-19 lockdown will be keenly watched as the new crop flows and is supported by our low Australian dollar,” Mr Clack said.

He said the risks of COVID-19 disruption to the Australian crush remained low, following the industry’s implementation of measures to prevent virus transmission, as well as a low national infection rate.