Sugar values set to rise as global production goes into deficit for first time in five years

February 04, 2016 at 3:42 PM

ugar is one of the few bright lights on the global commodity stage at the moment as demand outstrips supply for the first time in five years.

Globally, the crop is forecast to fall into deficit, down by 5.2 million tonnes of sugar on last season to 177.5 million tonnes a deficit of 4.1 million tonnes.

It is expected to deliver more sustainable returns to growers, but possible price hikes for consumers.

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AUDIO: Sugar analyst and canegrowers rep discuss global sugar deficit (ABC Rural)


Analysts are predicting a deficit over the next two seasons which will boost values, just months after the raw sugar price fell to about 10 cents a pound for the first time in almost a decade, a value below the cost of production.

Tom McNeill from Green Pool Commodities said weather conditions and poor investment in major growing regions were bringing down the global crop.

"We had five years of surplus conditions and that was largely [because of] better supply out of India," he said.

"It's really taken El Nino and poor financial conditions in both India and Brazil to bring production down globally... we saw far too much rain in Centre South Brazil and that slowed the harvest and also reduced the sugar content."

He explained the Brazilian government had held down the gas price and therefore the ethanol price, which had lowered producers' returns.

Now, the global deficit was expected to push sugar prices to sustainable levels for farmers and millers.

Mr McNeill said the futures price had lifted to 15.5 cents per pound recently, and values for 2016 reached $450 a tonne, and he said the overall story for the 2016/17 season was much more sustainable.

Favourable local situation

The higher sugar values coupled with a lower Aussie dollar are fuelling strong prices for Australian producers, who export 80 per cent of their sugar, and have missed out on three free trade agreements in the past 13 years.

The country's largest cane growing region, the Burdekin, is predicted to produce up to one million tonnes less cane than last season largely because of dry conditions.

Paul Schembri is the Queensland and Australian chair of Canegrowers and said two years of deficit could give growers more incentive to expand, but he warned the market was volatile.

"If the price were to go up, it's a very strong market signal, growers borrow money from banks, they make investment decisions to buy things on farm.

If the price were to go up, it's a very strong market signal, growers borrow money from banks, they make investment decisions to buy things on farm.

Paul Schembri, Canegrowers 


"But I have to warn that the sugar price is volatile, and we've now got to factor in this low price of oil; [that] means that the interest in ethanol is lesser and so cane that was bound for ethanol is now probably finding its way to the export channel."

Mr Schembri applauded the scrapping of international agricultural export subsidies late last year, which Australian farmers said would put them on a level playing field with their overseas competitors.

"We hope that countries now won't 'pump prime' surplus production in their countries and that surplus production won't find its way into the world market and depress sugar prices," Mr Schembri said.

Analysts are also predicting a jump in sugar consumption, but Tom McNeill assured the sugar shortfall wouldn't lead to a shortage for shoppers.

However, he said it could boost prices.

"There's still high enough global stocks to cover any contingency, what it probably does mean though is higher prices in the short to medium term as producers get some incentives to increase global production."

Tags: Ethanol Sugar