Rabobank trims world sugar hopes – but not by much

Rabobank has, reluctantly, joined the round of downgrades to forecasts for sugar supplies, unveiling a minimal cut to its estimate for world stocks in a report which backs a thesis of sharply lower prices.

The bank trimmed its estimate for the world sugar inventories in 2011-12 by 300,000 tonnes to 9.5m tonnes.

The stocks forecast, while in line with many forecasts earlier in the season, is significantly higher than many recent estimates. The International Sugar Organization last week pegged the surplus at 4m tonnes, while the US Department of Agriculture foresees a 6.5m-tonne excess.

Hopes for a surplus have waned with expectations for output in Brazil, the top sugar producer and exporter, where frost and flowering patterns have taken their toll on ageing cane.

On Friday, consultancy Canaplan cut by 24m tonnes to 476m tonnes its forecast for the cane crush in Brazil’s Center South region, which accounts for about 90% of national output, and the estimate for sugar production by 2m tonnes to 28.0m tonnes.

Record French yield?

However, Rabobank forecast "significant increases" in sugar output in Europe and Asia, pegging output in India, the second-ranked cane grower, at 26.0m tonnes, up some 1.6m tonnes year on year.

The bank noted a rise of 4%, to 5.1m hectares, in Indian cane plantings as of early August, and a promising start to the monsoon.

The European Union was set to see a 10-15% jump in sugar production from beet, helped by prospects for an "excellent" harvest in Germany, where the rains which have stumped cereals farmers have been more helpful to beet farmers.

In France, the EU’s top beet grower, yields could be set to jump 17% to 15.4m tonnes per hectare, trouncing the current record of 14.5 tonnes per hectare set two years ago.

UK output, hit last harvest by weather swings, could rebound by 20%.

Inventories swell

"The market should see global stocks gradually accumulating as the new northern hemisphere beet and cane crops are harvested and processed," Rabobank said.

While the fortunes of Brazil’s Center South would be "pivotal" to market sentiment for now, "the development of key crops the northern hemisphere, including the EU, Russia, India, China and Thailand, will steadily assume increasing significance in the coming months".

This increase in supplies will foster a "significant" rise in inventories over 2011-12, leaving stocks, as a proportion of consumption, at well above 40%, a figure "only slightly below its 10-year average".

Price prospects

Although the report stopped short of issuing price forecasts, a higher stocks-to-use ratio implies readier supplies and less need for buyers to pay up.

The five-year average for sugar prices in New York is 16-17 cents a pound, well below the 30.18 cents a pound that the benchmark October contract closed at on Wednesday.

Rabobank last month, with an estimate for the global surplus of 9.8m tonnes, forecast prices of New York’s near-term sugar contract averaging 21 cents a pound in both the January-to-March and April-to-June quarters next year.

New York’s March contract closed at 29.17 cents a pound on Wednesday, and the May lot at 27.40 cents a pound.

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