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EU sugar market

update and outlook 4th September 2018

Portrait of the month

Key EU sugar estimates 1

Focus on stocks 1

The weather in Europe 2

Latest beet tests confirm drought damage to yields but with

wide geographic variations 3

EU sugar production now estimated down to 19.4m tonnes in

2018/19 4

EU prices fall to a new all-time low and could fall even further 5

Just four ACP countries have supplied bulk raw sugar to the EU

since October 2017 6

EU exports now forecast at 3.4m tonnes in 2017/18 7

Sugar is the litmus test of UK’s post-Brexit trade policy 8

“Demonization” of sugar actually hinders the fight against

obesity, warns US nutritionist 9

Disclaimer 10

Key EU sugar estimates Tonnes 2017/18 2018/19 Δ Outlook

EU production 21.15m 19.40m ↓ 1.75m ↓

ACP imports 1.32m 0.70m ↓ 0.62m ↓

EU exports 1.31m 3.40m ↑ 2.09m ↓

For further details concerning the estimates given in this

report, please don’t hesitate to contact me. I am also open to

any suitable consultancy work. Please visit:

https://www.linkedin.com/in/hools ↗.

Focus on stocks EU sugar stocks in June

were reported by the EC to

be 7.3m tonnes, a little less

(0.2m less) than usual at

this time of the year:

However, included in the

total above, stocks of sugar

held by the EU refiners fell

by 180 kt wse in June 2018,

according to the EC.

Most of these data are

sourced from the European

Commission and/or publicly

available databases:

4th September 2018 Page 2 of 10 julianprice.com

The weather in Europe The drought experienced over much of western and northern Europe broke at last during the last

couple of weeks of August, after nearly two exceptionally dry months. The drought was particularly

marked in Denmark, Benelux, central and northern Germany, the Czech Republic and in the UK.

During this period, an exceptional heat wave dominated the the weather in France, Italy, southern

Germany, Spain and Portugal. However, further south and eastwards, in southern Italy, Greece,

Romania and Bulgaria, there has been too much rain.

As a result, on 28th August, the European Commission’s crop monitoring service MARS ↗ revised

yield forecasts for winter and spring cereals further downwards. The Commission had announced at

the beginning of August that that farmers affected by the drought will be financially supported and

be able to receive up to 70% of their direct payment and 85% of rural development payments by

mid-October 2018 instead of December.

The European Commission had already projected a fall in EU beet sugar production in 2018/19 after

heavy rain delayed spring planting, and the hot summer in France, Germany, Poland and Britain has

further severely stressed sugar beet. At the end of August, MARS cut its beet yield forecasts by 5.2%

compared with their forecast for July, as follows:

Source: https://ec.europa.eu/jrc/en/mars/bulletins ↗

4th September 2018 Page 3 of 10 julianprice.com

Latest beet tests confirm drought damage to yields but with wide geographic variations

Germany

At first, the German beets seemed to cope with the heat better than other crops, but since July, they

also suffered considerably, especially on dry sites without irrigation, leaving the beets more

susceptible to pests and diseases and pests. Nationwide, the north and east have suffered more

from the drought than the south and west of Germany.

In northern Germany, the Dachverband Norddeutscher Zuckerrübenanbauer (DNZ) ↗ noted on 30th

August that due to the dry weather, they expect below average sugar yields. According to a report

also 30th August by the Rheinischer Rübenbauer-Verband (RRV) ↗, beet yields in the region around

Bonn in western Germany are currently around 15% below the 5-year average at just 61.4 t/ha,

however, the sugar content is still measuring a very high level. Overall, the sugar yield resulting from

beet yield and sugar content is currently around 11 t/ha, also below the five-year average at this

time of the year. Yield variation between regions is huge this year, depending on water availability,

but RRV hoped that the beet can still generate growth thanks to the better weather recently.

In southern Germany, beet tests reported by Südzucker BISZ ↗ show moderate increases in growth

due to the persistent dry weather, however, the sugar content of the beets was reported in the

second test at then end of August to be promising. In the first test, the beet weight was

approximately 18% below last year’s result, although slightly above the 5-year average. The sugar

beet seed producer Strube also confirmed similar results in line with the five-year average.

France

On 1st September, the sugar beet institute ITB ↗ announced on Twitter @ITBetterave ↗ that it has

cut its sugar yield forecast for France to 13.4 tonnes per hectare, down 0.5 t/ha from a month ago

and compared with 16 t/ha last year.

The planted area in France is close to last year’s level at 484,000 hectares, inlcuding beet for jus vert,

according to the farm ministry France AgriMer ↗.

Poland

In Poland, the impact of hot, dry weather also varied widely, according to the Polish sugar beet

growers’ association KZPB ↗. “There are areas where the size of beets is much lower than average,

but there are also regions where they are characterized by both high weight and high sugar

content”, the KZPB said. Polish farmers have planted about 235,000 hectares of beet this year, up

slightly from 2017, and they will by now have started harvesting and delivering to the factories.

UK

British farms have also been hit by severe summer weather. “As with most arable crops, sugar beet

has been affected by the exceptionally dry and warm conditions this summer,” said Colm McKay,

agriculture director at British Sugar, according a report on Reuters ↗. Sugar beet plant populations

are seen largely on target but the implications of the late spring and the hot, dry summer are yet to

be fully understood by UK sugar beet growers.

4th September 2018 Page 4 of 10 julianprice.com

Denmark and Sweden

In light of the dry summer, Nordic Sugar decided to postpone the launch of the 2018/19 beet

campaign to late September to give beets the opportunity for further growth. The latest tests show

the beets have managed to cope quite well with this year's drought, according to Nordzucker ↗.

Belgium

In Belgium, the results of the third sampling carried out by IRBAB-KVIVB ↗ on sugar beets destined for

Raffinerie Tirlemontoise ↗ on August 27th showed that the sugar beet remains characterized by a reduced

leaf mass. The yield increase is 130 kg of sugar per day in the last two weeks and 134 kg in the last four

weeks. The daily increase remains lower than the average of the last five years (159 kg). However, the

averages hide regional disparities. Similar results were obtained in samples of ISCAL Sugar on 22nd August.

EU sugar production now estimated down to 19.4m tonnes in 2018/19 With around a month or six weeks of the growing season left in northern Europe, sugar beet can still

recover to some extent thanks to the rain that broke the heatwave a week or two ago.

Taking everything into account, including that ethanol production seems set to be maximized by beet

processors this campaign, julianprice.com Ltd. ↗ revises his forecast for EU28 sugar production to 19.4

million tonnes for the 2018/19 campaign as detailed in the chart below.

The succession of bad news for beet sugar, especially the contrast with rising EU cereal prices, and

not forgetting the failure of EU leadership ↗ which led to the neonicotinoid ban which will take effect

in September 2018, will now weigh even more on EU farmers’ decisions to plant beet in their 2019

rotations for the 2019/20 marketing year. We may also note also that many EU farmers may be

bound to more flexible beet supply contracts next year than was the case these past two years.

4th September 2018 Page 5 of 10 julianprice.com

EU prices fall to a new all-time low and could fall even further On 23rd August, the European Commission reported that EU domestic sugar prices dropped to 361

€/t in June 2018, based on updated invoiced prices submitted by EU sugar producers and refiners.

The Commission has revised its numbers for the weighted average standard deviations for the past

few months and now reports that the standard deviation in June was 60 €/t.

The Commission also reports average prices in three regions of the EU, as follows for June:

o Region 1 (AT, CZ, DK, FI, HU, LT, PL, SE, SK) : 362€/t

o Region 2 (BE, DE, FR, UK, NL) : 359 €/t

o Region 3 (others) : 375 €/t

The publication by the EC of regional prices in just three regions is designed to improve market

transparency whilst scrupulously avoiding the possibility that statisticians could “reverse engineer”

the numbers to extract the sale prices of individual sugar producers. But we’ll try nevertheless!

With spot sugar prices recorded in France around 310 €/t and 320 €/t in Germany, the Netherlands

and Belgium, the outlook for the reported price in July 2018 is widely expected to show a further fall

to a new record low, and yet further below the reference threshold of 404 €/t. Despite an ever-

receding respite driven by lower near term world sugar prices (although the white premium is

picking up), and despite increasing calls from the EU beet sugar industry to open Private Storage Aid,

the Commission is not expected to act, arguing, fairly convincingly I believe, that such a measure

wouldn’t help over the next couple of years and that it’s much better to wait for the outcome of the

farmers’ decisions to plant beet in 2019 before resorting to expensive, emergency measures.

4th September 2018 Page 6 of 10 julianprice.com

It is possible to extract intra-EU sugar prices, that is sugar prices recorded by Intrastat in cross border

trade within the EU28. These prices show a widening gap between the average reported by the EC

and prices for intra-EU trade (including sugar destined for the export markets). The gap is no doubt

reflective of the costs of freight, but might also be indicative of prices actually rising in the so-called

deficit markets of the EU. One can but hope this could be a small crumb of comfort in the market!

It is also possible to extract the import prices of ACP raw sugar for refining from Intrastat. Here the

picture remains dire, which the average ACP price for bulk raws in June being recorded at 284 €/t CIF

tel quel European ports, in this case probably CIF London River and Brindisi.

Just four ACP countries have supplied bulk raw sugar to the EU since October 2017 According to Eurostat, there were two ACP origins importing bulk raw sugar for refining in June

2017, South Africa and Belize, to Italy and the United Kingdom respectively, the prices of which were

reported to EU customs as 267 €/t and 298 €/t CIF tel quel, respectively.

Since EU quotas were abolished in October 2017, just four ACP countries have exported bulk raw

sugar to the EU; these were Swaziland, Guyana, Fiji and Belize. In addition, imports have been

recorded from Nicaragua, Honduras, Guatemala, El Salvador, Costa Rica, Brazil, South Africa and

France (presumably from the French Overseas Departments to EU countries apart from France which

closed it’s last refinery in Marseille in 2016).

4th September 2018 Page 7 of 10 julianprice.com

EU exports now forecast at 3.4m tonnes in 2017/18 According to Taxud-Surveillance data reported by the EC, EU exports reached 3,032,000 tonnes in

the 2017/18 campaign until 21st August 2018. Far from speeding up in the summer, the rhythm of

exports has slowed down to around 200,000 tonnes/month. Projecting this rhythm to September

would give a forecast of EU exports in 2017/18 of “only” 3.4m tonnes, significantly less than initially

foreseen based on the monthly rhythm of exports between October and April.

The top destinations for EU exports are Egypt (15%), Israel (11%), Syria (6%), Sri Lanka (6% although

none in the past three months), Turkey (5%), Lebanon (4%) and Mauritania (although no exports to

Mauritania have been recorded for eight months). These exports were loaded in EU ports in

Belgium (800kt), France (700kt), Poland (400kt), Netherlands (200kt) and Germany (200kt).

The average price for EU exports reported by EU customs authorities to Eurostat was 330 €/t FOB in

June 2018, a little higher than in April and May, but with #5 at US$ 327 pmt today, the outook for EU

export prices remains negative.

4th September 2018 Page 8 of 10 julianprice.com

Sugar is the litmus test of UK’s post-Brexit trade policy UK Prime Minister Teresa May toured three African countries last week, and the UK agreed a joint

statement ↗ with Southern African Customs Union member states (SACU) and Mozambique

committing the UK to continue to work towards the conclusion of a future UK, SACU and

Mozambique Economic Partnership Agreements (EPA) which will ensure continuity in the trade

relationship once the EU-SADC EPA no longer applies to the UK.

With the exception of SACU, none of the other African regional trade blocs have implemented their

EPAs which, many of them say, they were coerced into agreeing by Brussels in 2007 as a condition

for continuing access to the EU market. The EU would reply, correctly, that the then existing trade

arrangements were WTO-incompatible and had to be replaced by the end of 2007 with free trade

agreements covering at least 85% of all trade, but the sour taste of being bounced into the EPAs

nevertheless remains amongst African, Caribbean and Pacific countries (ACP).

Just as with the 1973 UK EEC entry negotiations on fish, New Zealand butter and lamb, so the issue

of ACP sugar remains an absolutely key litmus test in the choice with Brexit in 2018 between the

priorities of UK beet sugar producers, ACP and Least Developed Countries (LDCs), and in addressing

(or not) the self-evident and profound distortions in the global sugar markets. The ACP Sugar Group ↗ has recently produced an “infographic” highlighting the Group’s three policy priorities to ensure a

UK preferential market for LDC and ACP countries.

But Brexit also offers ACP leaders the opportunity to play the UK off against the EU, since the UK

hopes to begin trade talks with them at the same time as negotiations with the European

Commission on the successor to the Cotonou Agreement, which expires in 2020.

Before discussions may begin with ACP countries, the key Brexit question remains, should the UK

remain in a customs union with the EU? Alternatively, the same question may be re-phrased, should

the UK negotiate on the basis of the Chequers plan (as proposed by the UK in July) or a Canada-style

trade deal (as proposed by the European Commission’s TF50 ↗ )?

For the ACP, it would seem preferable that the UK should

leave the EU customs union, thus allowing the UK the

necessary room for manoeuvre to negotiate improved

terms for trade between the UK and ACP and LDC

countries. Leaving the customs union would also permit

the UK to implement domestic market and trade

mechanisms which could at least give the ACPs and LDCs a

chance that Brexit could “sweeten trade with developing

counties” as requested by the ACP Sugar Group ↗.

Meanwhile, UK sugar beet farmers, represented by NFU

Sugar ↗, are facing the same Brexit dilemmas as ACP and

LDC sugar farmers, albeit from a different perspective.

According to an article ↗ in The Daily Telegraph on 2nd

September 2018 (£), British sugar farmers are calling on

the UK Government to “maintain import tariffs and

quotas” after Brexit so as not to “open the floodgates” to

subsidized sugar from the global markets. In an apparent change of nuance perhaps prompted by

4th September 2018 Page 9 of 10 julianprice.com

declining world market prices, UK trade liberalization post-Brexit would leave UK farmers “especially

vulnerable”, the NFU said. The Daily Telegraph also reported in the article that Ruud Schers, the

highly respected analyst at Rabobank, said: “There are a lot of farmers in east England who are

affected by this. I wouldn’t be surprised if sugar beet disappears in the UK [if a removal of all tariffs

were pursued]”.

On the other side of the English Channel, the European Commission’s chief Brexit negotiator, Michel

Barnier, said on 29th August 2018 that the EU will offer UK “an unprecedented deal”, but that there

could be “no single market à la carte”. Michel Barnier’s comments came after a long, hot summer of

Brexit scare stories, not helped by the UK government publication on 27th August 2018 ↗ of an

“initial list of no-deal technical notices which detail what industry should do in the worst case

scenario when Britain exits the European Union”. The UK government notices give lots of details to

traders on how to prepare for Brexit if there’s no deal, and were “designed to allay the substantial

concerns about prices rises, food shortages, EU workers, trade barriers, border chaos and much

more”. But instead of allaying concerns, a close reading of the notices reveals much which remains

utterly unclear, and hence the notices only fanned the flames even more as the Brexit deadline for

negotiations looms at the end of October. UK National Farmers’ Union President Minette Batters

warned that, “this cliff-edge scenario if applied across the wider UK food supply chain, would be

disastrous for farm businesses, the economy and society at large”, whilst the the UK food and drink

industry urged the UK Government to “turbocharge” the sector’s exports and restore productivity

levels to avoid falling behind other European countries once Britain has left the EU.

There is a solution to the Brexit sugar dilemma. The UK could rise to the challenge of squaring the

sugar circles to balance the different needs of the UK domestic beet sector, the UK cane sugar

refining sector, the LDC/ACP cane sector, and in addressing the legitimate health concerns

surrounding sugar, and much else besides. The solution exists. It is to engage in detailed and

knowledgeable dialogue with a view to finding and implementing a balanced UK sugar policy.

“Demonization” of sugar actually hinders the fight against obesity, warns US nutritionist “It’s not what one eats that causes obesity, but what one’s body does with what is eaten,” said

Edward Archers PhD, of EvolvingFX, Jupiter, USA, Laxmi Haigh of NutritionInsight reported on 29th

Aug 2018 ↗, quoting an article published in the learned journal Progress in Cardiovascular Diseases ↗

and given very wide publicity on Sugaronline.com ↗.

“It was established nearly a century ago that ‘sugar’ is the main source of energy for most

physiologic processes – from thinking to running”, Dr Archer notes in support of his premise that

“dietary sugars are not responsible for obesity or metabolic diseases and that the consumption of

simple sugars and sugar-polymers (e.g., starches) up to 75 percent of total daily caloric intake is

innocuous in healthy individuals”.

Dr Archer concludes deliciously that, “It is time for the medical and scientific communities to return

to their roots, eschew magical and miraculous thinking, and demonstrate a modicum of skepticism

by refuting the illiterate nonsense and puritanical proscriptions engendered by diet-centrism”.

Would that supporters of the UK Soft Drinks Industry Levy ↗ and similar sugar taxes worldwide

(that’s you ↗, Jamie!) take good note.

4th September 2018 Page 10 of 10 julianprice.com

“What a difference a drop in temperature and 49mm of rain makes in the same field in

the last 4 weeks” – tweet from @JimScarratt on 26th August 2018

Disclaimer

o The opinions, views and forecasts expressed herein reflect the personal views of the author and do not necessarily

reflect the views of julianprice.com Ltd.

o Any comments or opinions in this report are not intended to be an offer to buy or sell commodities or futures and

options thereon as they merely state our views and carry no guarantee as to their accuracy.

o We make no representation or warranty that the information contained herein is accurate, complete, fair or

correct.

o All information, prices or projections are subject to change without notice.

o This information is not intended to be construed as investment advice.

o We do not accept any liability or loss or damage arising from any inaccuracy or omission in or the use of or reliance

on the information in this document.

ends