Executive Manager Sugar Marketing
Over the past month we have seen mixed results on the international market. Sugar prices have declined, however this drop was not isolated as agricultural commodity prices have been lower across the board as markets respond to macro-economic conditions, including lower than expected growth results in China.
Despite the broad movements, sugar prices have remained in their recent range of US20-25c/lb. This price window is still fairly robust compared to historic levels and supports QSL’s view earlier this season that the international market was operating with a natural floor at around US20c/lb. Going forward, a lower value Brazilian real against the US dollar may see this floor move lower.
One of the key causes of recent downward price movements is a surplus of sugar in the global market. The United Nations’ Food and Agriculture Organisation (FAO) recently released a report outlining its expectations for sugar production in 2011/12, leaving its forecast relatively unchanged at 173 million metric tonnes along with a global surplus of roughly 6.5 million metric tonnes.
For QSL and Australian growers, the impact of this surplus is limited as we export the majority of our sugar to Asia, which is in a structural supply deficit. This delivers benefits for Australian growers despite the broader market conditions.
“Market fundamentals indicate that Asia, where we export the majority of our sugar, is in a structural supply deficit and will be for some time. Growing Asian markets need more sugar than they have and they are willing to pay a premium for high-quality Australian sugar,” said Greg Beashel, Managing Director and CEO of QSL.
“This continuing strong demand sets QSL up well to continue to maximise returns for our members as we move into the new season.”
In other key recent market news, there has been uncertainty regarding the size of the harvest in Centre South (CS) Brazil as many analysts have revised their previous estimates for this year’s crop. The previous range for the CS Brazil crop was between 500 and 520 million tonnes of cane, but analyst forecasts are now either well above or well below this range. The US and Mexico crops are also down on expectations.
However, these nations’ flat or lower production levels are expected to be offset by stronger than expected growth in India, the EU, Russia and Pakistan.
India’s bumper season continues to play a key role in the market, with the Indian Government recently moving to allow unlimited sugar exports. Analysts have noted this could see up to two million metric tonnes of sugar exported from India in the last five months of the 2011/12 season, depending on how the supply chain manages the monsoon season.
Looking to the world supply and demand for 2012/13, analysts are expecting the sugar surplus to be smaller at around three million metric tonnes.
Here in Australia, mills have started to confirm crushing dates for the Australian season, with Sucrogen the latest to announce its timetable. Sucrogen’s Burdekin mills will commence crushing on 5 June.
“We continue to see strong demand and good prices on the horizon and anticipate a record Seasonal Pool return for the current season of $510-520 per tonne IPS,” said Mr Beashel.
QSL is a global leader in raw sugar marketing and supports the development of the Australian sugar industry by providing high quality marketing, information and logistics services to Queensland growers and millers. To receive market updates and other news via email, visitwww.qsl.com.au.