Sugar ‘isn’t cheap yet’ – so don’t bank on price recovery

(Agrimoney) – Don’t hope for a bull market in sugar “any time soon”, influential analyst soft commodities analyst Judith Ganes-Chase, warning that prices, while weak by recent standards, are still “not cheap”.

Ms Ganes-Chase said while New York futures prices, down some 30% over the past year, had suffered a “strong break”, the market had still not done enough to curtail output of the sweetener.

October sugar futures priced at some 12.5 cents a pound is “not cheap sugar,” she said.

“It is not low enough to force producers to make radical cuts to their production.”

European pressure

This was especially so when the incentive for Brazilian mills to turn cane in ethanol, rather than sugar, may be curtailed thanks to large US supplies of the biofuel available to the world market, and to a form dollar/weak real too.

“With the dollar strong, once would expect some added cane to be used for sugar output,” Ms Ganes-Chase said, with weakness in the real boosting the appeal to mills of producing the sweetener, a more important Brazilian export.

Furthermore, there could be “added pressure” on the refined sugar market thanks to production increases in Europe, which is from 2017 ditching output quotas on the sweetener.

“Without planned production cuts or positive economic news that will drive consumption sharply higher in emerging markets, it is hard to fathom the next bull move happening any time soon,” she said.

No bargain

The comments come as markets are pricing in a recovery in sugar values ahead, with March 2016 futures trading on Thursday at 13.43 cents a pound, a premium of more than 10% to the spot October 2015 lot.

This is seen as reflecting ideas that “supplies will be more restricted in 2015-16”, Ms Ganes-Chase said.

However, March futures were not offering “a bargain price” to encourage consumption needed to reduce stocks.

Thai raw surplus

The comments come the day after commodities house ED&F Man cautioned of further weakness in the spread between the October 2015 and March 2016 contracts, citing extensive stocks left over in Thailand, the second-ranked sugar exporter, after a bumper cane harvest.

“The weight of surplus Thai raws available today, not to mention the restocking the world has seen in the past 12 months, means a widening of the… spread looks entirely plausible,” ED&F Man said.