Commodities | Feb 27 2009
By Chris Shaw
Following two years of large surpluses the sugar market moved into a deficit last year. However, the magnitude of the deficit has been a surprise according to market analysts at Barclays Capital. On their revised numbers, market deficit in 2008/09 should now grow to 9.2 million tonnes, up from a previously estimated 3.3 million tonnes in December.
Much of the change in the revised estimates reflects the underperformance of production in India, reflecting both reduced acreage allocation and delayed payments to farmers. It has been the scale of the fall that has surprised, as the analysts point out in November the United States Department of Agriculture (USDA) had forecast Indian output of 21.1 million tonnes in 2008/09, but has now lowered its estimate to 16.5 million tonnes.
Barclays suggests this will see India go from being an exporter of 4.9 million tonnes in 2007/08 to a net importer of 2-3 million tonnes this year. Production elsewhere is also falling, with EU output expected to be down sharply this year. Output from the US, Australia and China is also forecast to be lower.
Import demand from both the UE and EU will further support the demand dynamic, in the analysts’ view. It expects global demand growth to come in at around 3% this year. The supply side picture will be most influenced by Brazil and the extent to which cane production is balanced between ethanol and sugar production.
Given Barclays expects oil prices to appreciate over the course of the year, it takes the view sugar demand for ethanol production in Brazil will also increase in coming months. This will further support the trend of investors being on the long side of the market. Any further positive news flow should support further builds and see prices move higher, in its view.