World sugar dynamics are the “worst” - for bulls – in at least 12 years, Green Pool said, hiking its estimate of the global output surplus, and hinting at the potential for further growth in stocks “into 2018-19 and perhaps beyond”.

The analysis group raised by 2.66m tonnes to 9.80m tonnes its forecast for the world production surplus in sugar in 2017-18.

Green Pool cited upgrades to production hopes - with the estimate for European Union output, for instance, raised by 700,000 tonnes to 19.5m tonnes, a jump of 23% year on year - while the forecast for global consumption was cut by more than 700,000 tonnes, in the face of “health concerns and sugar taxes”.

The strong surplus will lift inventories to 88.35m tonnes, their highest on data going back 12 years, “in turn raising global stocks-to-use from 43.7% to 48.5%, the worst since 2005-06”, the group said.

The stocks-to-use ratio is a key pricing metric, with a higher figure signalling less need for buyers to compete for supplies through raising prices.

Ethanol vs sugar

And Green Pool flagged the potential for further growth in world sugar inventories, depending on how a “disconnect” between prices of sugar and Brazilian ethanol resolve.

These values are connected through the ability of many mills in Brazil to turn cane into either sugar or ethanol, with the decision largely driven by financial incentives stemming from the relative prices of these products.

However, hydrous ethanol is currently prices at the equivalent of 15.7 cents a pound, well above sugar values, and is likely to get more expensive in coming months, as the Brazilian cane harvest goes into a seasonal wind-down.

If the elevated ethanol price “were to drag the global sugar price higher, it may end up prolonging a surplus cycle – into 2018-19 and perhaps beyond”, Green Pool said.

‘Looming industry crisis’

Already, it appears that the EU could be poised for another year of strong output, given likely prospects for beet sowing.

“We don’t think that farmers will cut back much – if at all - simply because they shouldn’t see much difference in their beet prices which in quite a few cases have been guaranteed at a minimum price for 2-3 years.”

The Australian-based analysis group also flagged “quite staggering” expansion in Russia’s sugar and beet output over the past 15 years, which has taken the country from being the top importer of the sweetener potentially to a net exporter in 2017-18.

Green Pool also highlighted strong growth in Pakistan’s sugar output, which was poised to rise 500,000 tonnes to a record 7.5m tonnes in 2017-18, and require exports to prohibit further growth in stocks.

Already “burgeoning” inventories in Pakistan are “impacting on internal prices, and threatening problems between farmers and millers and a government which has been very slow to react to the looming industry crisis”.

‘Top end of forecasts’

Green Pool acknowledged that its forecast of a 9.80m-tonne world production surplus in 2017-18 was “at the top end” of estimates from world sugar market analysts.

“Some part of the differences can be explained by different analysts using different statistical years,” with some commentators, for instance, such as the international Sugar Organization sticking by a strict October-to-September season, while others use local crop years.

 This would account for Brazil, for instance, on the basis of an April-to-March crop year.

 Raw sugar futures for March closed up 0.01 cents at 14.74 cents a pound in New York on Tuesday.