Is the sugar dive over?

December 2nd, 2013

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Category: Sugar

(Ingredient News) – The bullish and bearish fundamentals are strong indicators for how the sugar market is moving into 2014, according to Bill Holtgrieve, Sugar Category Manager at International Food Products. Holtgrieve presented the latest news and predictions on the sugar market during a recent presentation for the food and beverage industries. View here or continue reading for highlights of his presentation.

The USDA has used a number of tools to reduce the supply of domestic sugar. These include:

–          placing sugar in the Flexible Fuel Program for ethanol dumping

–          retiring re-export import rights and small quantities of TRQ import rights

–          taking loan forfeitures

What are the bear and bullish factors affecting the marketplace?

Bearish Fundamentals

-LMC International, an independent economic and business consultancy for agribusiness, is projecting a world market surplus of 5-6 MMT.

-China has built up a large surplus in the past year, but eventually they will need to go out into the world market to buy sugar. When China begins to buy, it will put more pressure on the world market.

-Mexico is selling more into the world market; large lots are being sold into big trading houses. Mexico has the warehouses but do they have the infrastructure to get all the sugar exported?

-India has produced large crops in the past year, with the country sitting on masses of sugar.

-As the world’s 2nd largest sugar producer behind Brazil, Thailand’s crop continues to grow.

Bullish Fundamentals

-Brazil is converting a larger share of sugar crop into ethanol (around 51%), which is the opposite of last year. This removes sugar from human consumption, representing a 2-3% shift. Longer term, with sugar being worked through, this could be supportive to the #11.

-Domestic beet suppliers have comfortably sold a minimum of 75% of their crop for 2013. Largest beet suppliers have sold 97% of their crop. A 15.5% stocks-to-use ratio does not represent forfeiture, 28 BB represents value. These numbers are subject to change due to fluctuations in demand and crop.

-Demand in China, India, USA, Mexico grows, especially in China and India.

-Domestic USA beet and cane sugar growers are unhappy with returns. Mexican growers are also unhappy with returns, due to the downturn in the market.

Bottom Line to Buyers

It is a delicate sugar market right now with any changes causing a reaction. The beet crop should meet expectations, and the cane crop should meet or exceed expectations. We have a juggling act with sugar being forfeited into storage and new beets coming in. A potential buying opportunity is nearby, with January as a better indicator if there will be improved prices or not. The market is under pressure, which will prevent the market from going any higher, pending any natural disasters. Demand may not clear out surplus, however.

The psychology of the market is to support the market and this is happening. Our recommendation is to have 50-75% coverage for 2013/2014.

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