Abares hikes sugar price hopes, as output falters

(Agrimoney) – Abares hiked its forecast for sugar prices to levels above those investors are factoring in, as it trimmed to 200,000 tonnes its estimate for the world production surplus, cutting ideas for output in the likes of Brazil, China and India.

The official Australian commodities bureau raised by 2.0 cents to 16.0 cents a pound its forecast for the average price of the spot New York raw sugar futures contract in 2014-15, on an October-to-September basis.

The price at that level would be the lowest in six years.

Nonetheless, while attained for much of October and November, it implies some recovery in values from current levels, with New York’s spot March contract closing on Monday at 15.35 cent a pound, and the July 2015 contract at 15.92 cents a pound.

And it reflected a cut to 76.8m tonnes in the Abares forecast for world inventories at the close of the season, a build of only 200,000 tonnes rather than the 1.2m tonnes previously expected.

Stocks-to-use decline

Indeed, the stocks-to-use ratio – a key pricing metric, indicating the availability of supplies and thus the degree of competition buyers will face to secure them – “is expected to decline for the first time in five years”, by 0.8 points to 42.0%, Abares said.

The revision reflected a cut to expectations for world production, with the estimate for Brazilian output slashed by 1.3m tonnes to 38m tonnes, “because of drought in Brazil’s Centre South region”,  which is responsible for some 90% of domestic volumes.

The national cane crop was downgraded by 12m tonnes to 608m tonnes.

The Abares estimates – which are compiled strictly on an October-to-September crop year basis, contrasting with the April-to-March year used domestically and by many other sugar commentator – also factor in an increase of 1 point to 56% in the proportion of cane used in making ethanol, rather than sweetener.

‘Adverse effects’

The bureau also trimmed its estimate for output in Thailand, the second-ranked sugar exporting country, by 200,000 tonnes to 12m tonnes, reflecting an expectations of a drop in yields “because of adverse effects of dry weather in key growing regions”.

And it cut its forecast for output in India, the second biggest producing country, by 300,000 tonnes to 27m tonnes.

Output in China, a key importer, was pegged at 13.3m tonnes, down 700,000 tonne from the previous estimate, reflecting a steeper forecast of 9%, in cane area thanks to less generous assumptions on subsidy.

“The Chinese government reduced the price millers pay growers for cane from around $78 a tonne in 2013–14 to $72 a tonne in 2014–15,” Abares said, if flagging the boost to processors from the change.

“This reduction is expected to support mills that have struggled to stay in business as well as reduce domestic sugar production and stocks.”