The Oil Rally Makes Dessert Expensive When Cane Turns Into Fuelhttp://www.bloomberg.com/news/articles/2016-06-05/the-oil-rally-could-make-you-think-twice-about-ordering-dessert
June 07, 2016 at 12:38 PM
This year’s rebound in oil prices has an unlikely victim: the dessert plate.
To understand why, look no further than Usina Batatais SA, a sugar-cane processor in Sao Paulo. Enticing fuel margins mean the company is using a bigger cane crop to produce more ethanol, while keeping its raw sugar output unchanged. Even after sugar prices surged recently, “there’s no time and cane anymore” to make a switch, said Bernardo Biagi, Batatais’ president.
It’s a story that’s being played out across Brazil, the world’s biggest sugar producer and exporter. That could exacerbate the global supply deficit after droughts already hurt crops in India and Thailand, the No. 2 shipper. Prices are trading near the highest in almost two years, and hedge funds are making a record bet that the rally will continue.
“The ethanol margins have been good, and it’s been directing more of the sugar cane in the direction of the ethanol industry,” said Arlan Suderman, the chief commodities economist at INTL FCStone Financial Inc. in Kansas City, Missouri. “If you look at global sugar production, the Center-South area of Brazil is really the only bright spot in world production right now. Therefore, the world’s looking to them.”
Raw sugar has jumped 24 percent this year on ICE Futures U.S. in New York. Prices on Monday touched 19.42 cents a pound, the highest for a most-active futures contract since October 2013. Hedge funds and other large speculators boosted their net-long holdings in the commodity by 4.9 percent to 222,686 U.S. futures and options in the week ended May 31, Commodity Futures Trading Commission data showed three days later. That’s the highest since the data begins in 2006.
Analysts and traders are also expecting more price gains. Futures could reach 19.9 cents by the end of the year, according to the average of 15 estimates in a Bloomberg News survey. More than half of the participants predicted that the sweetener will touch 20 cents, which would be the highest since October 2013.
“Weather issues and the shortage will keep the market in an uptrend,” said Donald Selkin, the chief market strategist at National Securities Corp. in New York who helps manage about $3 billion. He predicts July futures will reach 20 cents within a few weeks.
Prices have already advanced for four straight months amid drought conditions in Thailand and India, the second-biggest grower. For farmers such as 51-year-old Prabhu Chougule, who grows sugar cane and peanuts on 45 acres in India’s state of Maharashtra, the dry weather can have devastating consequences for his crops. Without rains coming soon, he estimates that his output will drop 25 percent from last season.
“The situation is really bad,” Chougule said. “Everyone is anxiously looking at the sky waiting for the rain.”
While output was declining from Asia, analysts had thought that a big crop from Brazil could help buoy supplies. That outlook has changed amid worsening expectations for Indian and Thai output. Exports from South America won’t be enough to balance the global market, according to Citigroup Inc. On May 18, Brisbane, Australia-based Green Pool Commodity Specialist Ltd. raised its projection for this season’s global deficit by 28 percent. The firm also increased its outlook for next year’s shortfall.
Adding to the supply squeeze, heavy rains are now disrupting harvesting and shipping in Brazil. The port of Santos had its wettest May since at least 2013. The showers also hampered cane crushing in the Center-South region during the second half of May, said Antonio de Padua Rodrigues, technical director at industry group Unica.
Still, the shipping backlog in Brazil could prove to be temporary. At the same time, the recent gains for sugar prices could prompt millers to rethink their move to produce more ethanol, and instead turn to the sweetener. In the second half of May, processors used 56 percent of the cane crop to make ethanol, down from 62 percent a year earlier, data from industry group Unica showed June 1. Also helping to ease the deficit, demand growth for the sweetener has been tepid amid slowing global economies and consumer health concerns.
The outlook “is really two-pronged,” said Lara Magnusen, a La Jolla, California-based portfolio manager at Altegris Advisors, which manages $2.44 billion. “You’ve had this crazy weather driven by El Nino, which has really hit India in particular. Brazil has actually produced quite a bit. But overall we still have a sugar deficit, and that’s assuming average demand. If we start to see China ratchet up their imports, then you could really see sugar prices take off. By the same token, if demand stumbles into China -- that could spell trouble for sugar.”
May 24, 2017
It’s not this year’s price crash that haunts the $150 billion sugar industry. It’s the fear of worse to come. Raw sugar’s 16 percent drop ranks it bottom of the 22 raw materials on the Bloomberg Commodity Index. Shocks to demand in top consumer India and prospects of more European supply are helping shift the market to a surplus, hurting prices. Yet beyond such market dampeners, hang darker clouds. After decades of stable demand growth, almost doubling per person since 1960, the world is heading for a tipping point as shoppers turn against the cola and candy blamed for an obesity epidemic in the rich world. At the same time, sugar has to compete with cheap syrups increasingly used in processed food. "Growth is not what it’s been," Tom McNeill, managing director of Green Pool, said in an interview. "There is undoubtedly a move by global bottlers and by a lot of global food manufacturers to reduce the sugar content in their products."Read More
May 24, 2017
The "war on sugar" being waged by governments and consumers to combat public health emergencies like diabetes is slowing growth in global demand, which along with other factors could signal a fundamental shift in consumption ahead. Consumption may grow at its slowest pace in seven years in 2017/18, according to analyst group Platts Kingsman. It forecasts a rise of 1.04 percent, nearly half the average growth of about 2 percent per year over the last decade. "Consumption is generally stagnating in developed countries," Tom McNeill, director at commodity analyst group Green Pool, told Reuters.Read More
May 9, 2017
Global sugar exports will exceed demand this season and the next as India brings in less than expected and the European Union boosts output, according to Tropical Research Services, which advises hedge funds. Exports will beat import demand every quarter through September 2018, TRS estimates. The trade-flow surplus will total 398,000 metric tons in the third quarter, reversing a previous forecast for a shortage of more than double that amount, said Sean Diffley, the firm’s head of sugar and ethanol research.Read More
May 5, 2017
HOME COMMODITIES COMPANIES MARKETS OPINION DATA CALENDAR SUBSCRIBE Thurs 11th May 2017 PRINTABLE VERSION EMAIL TO A FRIEND RSS FEEDS 13:57 UK, 5th May 2017, by William Clarke Green Pool trims sugar deficit forecast, a touch... Sugar analyst Green Pool only slightly trimmed its forecast for a hefty sugar surplus next season, as consumption grows only sluggishly despite easing sugar prices. "Consumption is a major issue for sugar, with global consumption growing only slowly," Green Pool said. "Some growth is being seen in developing countries, while consumption is actually falling in some developed countries."Read More
July 1, 2016
The world is running short on sugar and the tighter supplies are driving prices to the highest in almost four years.Read More
July 1, 2016
Posted Thu at 11:54am Sugar being stored at one of Queensland Sugar Limited's bulk terminals PHOTO: The global sugar price has hit a four year high overnight. (Supplied by Queensland Sugar Limited) MAP: Mackay 4740 The global sugar price continues its strong rally this year, jumping 5 per cent in overnight trading in New York. It is currently buying 20.82 US cents a pound, its highest level since August 2012. A worldwide supply shortage plus a slow harvest in Brazil has seen sugar attract increased interest from investors.Read More
June 14, 2016
* Harvest weather returns to Brazil's sugar regions * Weak pound supports London cocoa By David Brough LONDON, June 13 (Reuters) - Raw sugar futures on ICE held steady on Monday near a 2-1/2-year peak with dealers focused on improving harvest weather in Brazil, while arabica coffee was little changed as worries over frost risks eased. A weakening pound, pressured by concerns over the coming British vote on EU membership, gave support to London cocoa. Raw sugar steadied, with a focus on improving conditions for the cane crush in centre-south Brazil. "The weather across Brazil's centre-south has improved markedly over the past few days as dry weather returns across the region allowing the crush to push into top gear again and port loadings to get back to normal," a broker said. Dealers noted that speculators again boosted the record net long position in raw sugar contracts on ICE they have held since early May in the week ended June 7, according to U.S. data.Read More
June 7, 2016
Marvin G Perez Fabiana Batista Megan Durisin This year’s rebound in oil prices has an unlikely victim: the dessert plate. To understand why, look no further than Usina Batatais SA, a sugar-cane processor in Sao Paulo. Enticing fuel margins mean the company is using a bigger cane crop to produce more ethanol, while keeping its raw sugar output unchanged. Even after sugar prices surged recently, “there’s no time and cane anymore” to make a switch, said Bernardo Biagi, Batatais’ president.Read More
June 2, 2016
* Coming up: Brazil Unica cane crush data due at 1300 GMT * NY July/September cocoa spread narrows By David Brough and Nigel Hunt LONDON, June 1 (Reuters) - Raw sugar futures on ICE fell on Wednesday before Brazilian cane data expected to show a strong crush for the first half of May, while cocoa eased in spread-related dealings. Coffee steadied, supported by concerns over a poor Brazilian robusta (conillon) harvest. Raw sugar dipped, moving away from Tuesday's 23-month peak, supported by a shift to a global deficit. Dealers awaited Brazilian data from cane industry group Unica at 1300 GMT, expected to show a rapid crush in early May. "We expect that the data will show a continued strong harvest in the first half of May. Our guess is that it will be close to 40 million tonnes of cane," said Tom McNeill, director of Green Pool Commodities.Read More
May 16, 2016
A realisation of a global sugar deficit, coupled with political turmoil in Brazil, has seen the sweet commodity continue to rally in world trade. Overnight, the July supply contract for raw sugar closed at 16.98 US cents a pound, down slightly from its peak during trade of 17 cents.Read More