Having endured the full brunt of COVID-19’s disruption – decreased consumption, distribution hold-ups, plunging oil prices and diving commodity prices – the global sugar industry is now looking towards recovery, according to Rabobank’s latest global Sugar Quarterly report.
As lock-downs ease and foodservice resumes, world sugar prices are starting to rebound, with the ICE #11 Raw Sugar futures finishing the third week of June at 12.18 USc/lb, almost a three cent recovery from April, when prices dropped to as low as 9.21 USc/lb.
And in Australia, domestic prospects are also on the improve – a favourable season driving production, elevated 2020 regional premiums helping buoy margins, and prospects of a low Australian dollar bolstering export opportunities, the bank says in its report for Q2 2020.
Rabobank commodity analyst Charlie Clack said the bank had now lowered its forecast for global sugar consumption for the year ending October, from flat to a one per cent decline – largely driven by the pandemic’s impact in countries such as India, Indonesia and Brazil.
As a result, he said, this would see global sugar stocks declining by less than previously forecast – Rabobank now anticipates a smaller global deficit of 4.3 million metric tonnes raw value through the 2019/20 (October to September) season, revised from its previous estimate of 6.7 million metric tonnes raw value.
“Looking ahead, we expect consumption to recover from the pandemic and go back to trend growth in 2020/21, resulting in a 1.7 per cent increase, and for global production to increase by almost five per cent, driven by a recovery in India and North American crops,” Mr Clack said.
Assessing COVID-19’s impact on global consumption
Mr Clack said sugar consumption during COVID-19 restrictions varied across the world and, although food service outlets were now re-opening, demand was unlikely to return to pre-COVID-19 levels in the near-term.
In the EU and UK, he said, the loss of demand in the beverage and dairy sectors, and overall negative economic impact on purchases, had weighed heavily on the sugar sector.
Strict COVID-19 restrictions across India had also led to a drop in 2019/20 consumption of 3.4 per cent, year-on-year.
“While we anticipate a sharp drop in India’s food service sales and consumption in quarter two 2020, this is also a key period for sales of ice-creams, beverages and other sugary snacks,” Mr Clack said. “Rabobank forecasts a recovery in the 2020/21 season in India as behaviours return to a ‘new normal’.”
In North America, the pandemic appears to have had less of an impact on consumption – with the higher usage of high-fructose corn syrup, rather than sugar, in soft drinks minimising the decline of sugar demand in beverages in the US and Mexico.
Looking ahead, Mr Clack said it was broadly agreed that COVID-19 would negatively impact 2019/20 global consumption, but the full extent was very much unknown.
“Potential “second-wave’ infection events, the longevity of social-restrictions and the severity of a global recession will all play into consumption, as will consumer behaviour,”
Global sugar production outlook
Global fundamentals should take higher priority for sugar markets, Mr Clack said, as the southern hemisphere crush gains pace, and Asian cane crops are underway.
He said India’s 2020 monsoon season was on time, and at pace, with the favourable season contributing to predicted increase in production – the report forecasting Indian 2020/21 production at 33.5 million tonnes, up 16 per cent year-on-year, if realised.
Indian exports were also strong, despite port congestion and labour issues.
In Brazil, port congestion was set to ease, Mr Clack said, better positioning the country to distribute a bumper harvest.
“Dry weather has permitted a flying start for the centre/south harvest in Brazil, and by the end of May, 145 million tonnes of cane had been harvested, versus 129 million tonnes at the same time last season,” he said,
“As expected, progress to date shows a pronounced swing to sugar production this season, with 46 per cent of cane going to sugar production over ethanol, versus 33 per cent last season.”
With the 2020/21 Thai cane crop suffering a poor season due to drought, Mr Clack said the impact was compounded by a likely year-on-year cut in domestic acres, and a lower availability of irrigation water.
As such, he said Rabobank expected Thai sugar output to reach just 8.15 million tonnes, down five per cent year-on-year and 47 per cent from 2018/19.
“Overall, easing Brazilian port congestion, coupled with flowing Australian and Indian raw sugar is forecast to keep 2020 ICE #11 prices confined to the 10.5-12 USc/lb region, however, we cannot rule out the influence of energy markets, FX and speculators when looking ahead,” Mr Clack said.
With the 2020 crush now underway in northern and central Queensland, with southern and NSW mills scheduled to begin in coming weeks, Mr Clack said, wet weather delays had dampened early progress in the Burdekin, Herbert and Tully regions.
As a result, crushing pace was some 20 per cent behind last season and 51 per cent behind the 2018/19 season. And with above-average rain predicted over coming months, he said, a slow 2020 crush – and a late-season finish – was expected.
However, Mr Clack said, the favourable season had much improved yield prospects, with Australian 2020 cane production expected to reach 31 million tonnes, up one million tonnes year-on-year.
Australian sugar production was forecast to reach up to 4.4 million tonnes, up marginally from 2019.
“While 12-month expectations for the ICE #11 are subdued, below 12 USc/lb in the 12-month period, demand prospects in Australia’s major Asian export markets – namely Korea, Japan, Indonesia – following COVID-19 lockdown will be keenly watched as the new crop flows and is supported by our low Australian dollar,” Mr Clack said.
He said the risks of COVID-19 disruption to the Australian crush remained low, following the industry’s implementation of measures to prevent virus transmission, as well as a low national infection rate.