Sugar prices may ‘spike’ despite better supplies

images (3)

Sugar prices remain vulnerable to "spikes" despite improved hopes for a production surplus, given the extent to which stocks have fallen – and with 2012-13 unlikely to usher in freer supplies.

The International Sugar Organization, in quarterly briefing, raised by 250,000 tonnes to 4.46m tonnes its forecast for the output surplus in 2011-12.

The revision reflected firmer expectations for European Union and Russian output, following bumper beet harvests, tempered by a further downgrade to hopes for top-ranked Brazil which looked set for a 3.3m-tonne drop in production, higher than the 2.9m-tonne drop previously expected.

"In many other major producers the [2011-12|] season is expected to bring significantly higher production than in 2010-11," the ISO said, flagging also improved export prospects from Australia, India and Thailand.

‘Price spikes possible’

But it urged against complacency amongst buyers despite the first production surplus in four seasons, given the extent to which stocks depleted by successive shortfalls.

"Even if the currently anticipated differential between export availabilities and import demand goes to stocks at the end of the season, the stocks-to-consumption ratio of about 37% would still remain at a historically low level," the organisation said.

The stocks-to-use ratio is an important guide to the availability of a commodity’s supplies, and therefore of its price potential.

Indeed, the "low level" of sugar stocks was "likely to mitigate the potential bearish pressure of surplus fundamentals throughout most of the current cycle to end in September 2012".

And it left the market vulnerable to supply shocks, meaning that "any currently unforeseen, weather driven supply disruption would not be moderated by releases of sugar from stocks, making further price spikes possible despite the surplus character of the season".

‘No further stock rebuilding’

Nor could buyers hoping to hold out for another year bank on cheaper supplies, given that Brazilian output looked set for only a partial recovery in 2012-13 from this season’s decline, and India looked set for a substantial decrease in production.

"Next season, world production may equal global use of sugar," the ISO said.

"Therefore no further stock rebuilding in 2012-13 is anticipated and the stocks-to-consumption ratio is unlikely to rise."

The fears for India, the second-ranked sugar producer, stemmed from New Delhi’s reluctance to approve exports, to avoid running down domestic supplies of an important foodstuff, and risk stoking price rises.

However, it risks a build-up of arrears in sugar mills’ payments to growers, so discouraging cane production.–3861.html

CME: Grain and Protein Supplies Down

images (1) US – USDA provided yesterday its latest forecasts on grain and protein supplies for 2011/12 and the data generally was more negative than the August forecast, write Steve Meyer and Len Steiner.

On the grain front, USDA lowered its estimates of US corn yields this fall. The reduction was hardly surprising given the recent flurry of private analyst reports with lower yield estimates as well as the weekly USDA crop progress report showing deteriorating corn crop conditions.
The lower yields are reverberating throughout the industry as this is the first time since 1995/96 that the annual corn yield is expected to be lower than the 10-year yield average. One of the arguments given in the last decade for boosting farm supplies is that technology will come to the rescue and resolve the tension behind rising global demand and limited natural resources.
The argument was that developments in new cultivars would help boost yields and allow US farmers to continue to meet growing demand. It remains to be seen what science will provide down the road but, at the moment, the corn crop has hit a speed bump in term of yields and exacerbated an extremely tight supply situation.
A recent Wall Street Journal article highlighted the challenges in this front by pointing out that western corn rootworms had ‘evolved to resist the natural pesticide made by Monsanto’s corn plant”. The latest USDA corn yield estimate is now pegged at 148.1 bushels per acre, almost five bushels per acre lower than the August estimate and about 10 bushels per acre from the July estimate.
The reduction in yield estimates removed more than 400 million bushels from an already very tight supply/demand balance sheet. The most recent USDA report allocates where the reduction in supply will likely occur. The biggest loser into next year will likely be the livestock and poultry industry, with feed use expected to decline some 300 million bushels from the previous year and 200 million bushels lower than the August estimate.
Part of the reduction in feed use reflects higher DDG use in cattle and, to a lesser extent, pork and poultry. However, the reduction in feed use reflects lower animal units expected to come to market in the next 12 months.
Forget about expanding the herds and boosting supplies to alleviate some of the price spikes. The latest USDA report indicates that meat protein price inflation will likely be the theme again next year.
The USDA table also accounts for a 100 million bushel reduction in ethanol use. There is some argument that ethanol use could be lower should Congress phase out ethanol subsidies and supports.
However, there is too much unknown in that front and there is no questioning that ethanol demand will also depend greatly on what happens with crude oil prices. Finally, USDA reduced corn exports by another 100 million bushels. China has emerged recently as a large buyer of corn in the global market and reducing exports by 200 million bushels year over year given this demand will also be a significant challenge.

Sugar prices to avoid dive despite better supplies

tải xuống (15) Sugar prices are not set for sharp drop in 2011-12, despite a return to a healthy world production surplus, as countries – notably China – rebuild stocks depleted by successive years of squeezed supplies.

The International Sugar Organisation, in its first official forecast for 2011-12, said sugar production would exceed demand by 4.2m tonnes, the first substantial surplus in four seasons.

While the organisation "radically revised downward" its ideas over Brazil’s contribution, warning that the country’s production problems stemming from low rates of cane replanting would extend into 2012, it forecast a rise in output from India and from Europe’s beet sugar growers.

Indeed, beet sugar will, against the long-running trend, increase its share of total supplies of the sweetener to 21.4%, from less than 20% in 2010-11. In the 1970s, the figure averaged 40%.

Price prospects

Nonetheless, the ISO said it "does not believe the first season of a significant statistical surplus" after long-running tightness "will bring considerable bearish pressure on sugar market values".

"Major downward price corrections would be a surprise."

The depleted level of world sugar inventories meant that, as a proportion of use, they would still only end the season at about 36%.

This figure is "as low as in the deficit season of 2008-09", which ushered in the recent run of high prices – culminating in a 30-year high of 36.08 cents a pound reached in New York’s futures market in February.

Chinese needs

For China, where "two years of massive drawdowns have left stocks depleted", a programme of inventory rebuilding was already picking up pace, with July imports of 645,000 tonnes likely to have been repeated last month.

China’s imports are expected to reach 2.75m tonnes in 2011-12, up from and 2.1m tonnes in the current season and 1.84m tonnes in 2009-10.

Further ahead, India, the second-ranked sugar producer, will provide a buffer against falling prices, with its growers likely to show their historic readiness to switch crops should values fall too far.

"Should world prices fall over the coming months, it is very likely that Indian production post-2012 will suffer as a result and the country may enter the downward phase of its sugar production cycle," the ISO said.–3551.html

Crop supplies tight, record prices – FAPRI update

images Tight crop supplies and record farm prices dominate a midyear baseline update from the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri.

“Drought, floods and changing economics raise the outlook for many agricultural commodities,” said Pat Westhoff, director, MU FAPRI.

A new baseline update takes those changes into account, Westhoff said, but does not represent a full baseline report. The updated baseline will be used for independent economic analysis of farm, budget and biofuel policies.

Wet conditions and floods delayed and prevented plantings across the Corn Belt and Northern Plains. Droughts across the South and other areas added to the factors changing the outlook.

In the FAPRI baseline, corn prices increase on average from $5.25 per bushel to $6.46 for the 2011-12 crop to be harvested this fall. Likewise, soybeans rise from a projected $11.25 this year to $13.53 per bushel for 2011-12.

The baseline starts from the USDA August estimates of 2011 crop production. Those estimates showed below-trend yields for corn, soybeans and several other crops.

“Short crops contribute to higher feed costs, which pressure livestock and dairy producers and increase risks,” Westhoff said. “Higher feed prices contributed to slower growth in livestock production, higher meat prices and a decline in domestic per capita meat consumption since 2007.

“However, consumer demand improved for beef and pork, particularly in international markets. Poultry producers remain in a difficult situation,” he added.

“If consumer demand improves as expected during the next couple of years, beef and pork producers should endure higher input costs without further downsizing of herds.”

Consumers will see increasing meat prices into 2012, according to FAPRI.

In the beef herd, FAPRI projects another half-million-head decline in cows to 30.4 million by the start of 2012. By 2016, cow numbers should increase to 31.5 million head.

Beef supplies remain low as the cow herd rebuilds. Beef production declines by a billion pounds between 2011 and 2014. That leads to stronger prices the next four years. Fed cattle go from an average of $112 per hundredweight in 2011 to $120 in 2015. The baseline ends at 2016 with steers at $116 per hundred.

A similar trend occurs in feeder steers, Missouri’s major livestock product, from $134 per hundredweight to $147 in 2014, dropping back only to $138 in 2016. Prices are based on 600-650-pound steers at Oklahoma City.

Dairy numbers remain steady at 9.1 million cows until dropping to 9 million in 2014.

The average all-milk price, projected at $20.10 in 2011, eases to $19.47 by 2016.

“The update covers near-term outlook for a few commodities and goes out only five years instead of the 10-year annual baseline issued each winter. The update does not receive a full external review,” Westhoff said.

FAPRI assumes that provisions of the 2008 farm bill will continue, even though many are scheduled to expire. However, the ethanol tax credit and tariff are assumed to expire as scheduled at the end of 2011.

The next baseline will be prepared in early 2012, starting internally before Thanksgiving.

The update covers corn, soybean, ethanol, wheat, upland cotton, rice, beef, pork, poultry and dairy. The full update will be posted on the MU FAPRI

For 27 years, MU FAPRI has supplied economic analysis for proposed agricultural legislation by the U.S. Congress. That included multiple runs on every farm bill.

MU FAPRI is funded in part by the Agricultural Experiment Station of the College of Agriculture, Food and Natural Resources in Columbia, Mo.