Sugar, Australia’s second-largest export crop after wheat, has rebounded to 12-month highs after the price rocketed 30 per cent from its February lows.
Raw sugar futures, which bottomed at US12.7¢ per pound in February, soared to US16.7¢ on March 23 before easing back to US15.9¢ this week.
“We’ve seen a lot of volatility in 2016 and a lot of that has been speculators of funds selling in and out,” said Georgia Twomey, an analyst at Rabobank.
“But the recent lift is fundamentals again starting to drive the price.”
In particular, said Ms Twomey, an El Niño-impacted growing season had driven a 2015-16 supply deficit of 6.8 million tonnes and spiked prices sharply upwards.
“We’ve got tightened production out of Asia, in particular, which is causing the deficit, and consensus is for the decline to be a fairly wide one in 2015-16.”
Production in Thailand, China and India would show a sizeable decline in 2015-16, she said.
Australia, however, has just enjoyed a bumper production year with over 34 million tonnes of cane crushed in 2015 – the most since 2006.
Next few months important
According to Rabobank’s global outlook, the next few months will be important ones for sugar.
“The next few months will bring confirmation regarding key crops in Asia – above all, Indian and Thai output should be clearer – plus some early indicators of the potential for important northern hemisphere crops.”
A major factor on the price of the commodity is developments in Brazil, the world’s largest raw sugar exporter. Not only does Brazilian sugar output affect the price of sugar, so too does the value of the Brazilian real.
This is because the relative strength of the real against the US dollar determines how much of Brazil’s sugar cane gets turned into ethanol – used by many Brazilians as a substitute for petrol – and how much gets turned into sugar.
According to the Rabobank outlook, ethanol prices are expected to decline over coming months, “unless there there were to be a further significant and sustained strengthening of the Brazilian real against the US dollar”.
That should be good news for sugar production – and a weight on sugar prices. “Rabobank’s preliminary view of the 2016-17 [Brazilian] harvest is a cane crop in the range of 610 to 620 million tonnes, of which slightly more than 43.5 per cent is allocated to sugar production.”
This is “significantly” higher than 2015-16’s figure of 40.8 per cent.
To complicate matters, a major impact on the real at the moment are political developments surrounding Brazil’s current corruption scandal, known as lava jato, or “car wash”.
“In the last week, the Brazilian real has appreciated against the US dollar, partly as a result of the dollar losing some ground generally, and partly as a reaction to the latest twists and turns of the ‘car wash’ corruption scandal,” said the report.
The Brazilian exchange rate, in the short-term at least, is “extremely difficult to predict”, the report said.
Source – SMH