World Sugar in flux -

Peter de Klerk

Senior Economist

International Sugar Organization

International Sugar Organization1

Forecasting the Market Movements

The trouble with forecasting …

International Sugar Organization2

Source: https://theprogenygroup.com/blog/the-follies-of-making-market-predictions/

Sugar Fundamentals & Prices

Production vs Consumption (k mt) Price Action – No11 Raws

International Sugar Organization3

-10,000

-5,000

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

100,000

110,000

120,000

130,000

140,000

150,000

160,000

170,000

180,000

190,000 Surplus/deficit Production Consumption

-

5

10

15

20

25

30

35

40

cents

per

pound

10

11

12

13

14

15

Oct-18 Oct-20

Cents

per

pound

18-Jun 18-Jul 18-Aug

Spreads are dealing with surplus

International Sugar Organization4

1.63 c/lb = 13.1%; 6.4% CAGR

2.24 c/lb = 20.2%, 9.6% CAGR

2.58 c/lb = 25.5%, 12% CAGR

Who is driving the price…?

International Sugar Organization5

0

0.2

0.4

0.6

0.8

1

1.2

Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19

Mill

ions

Gross Short

Gross Long

0

0.1

0.2

0.3

0.4

Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18

Mill

ions

Non Commercial Long

Non Commercial Short

…

International Sugar Organization6

10

12

14

16

18

20

22

24

-200,000

-100,000

0

100,000

200,000

300,000

400,000

Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18

cents

per

pound

Lots

of

Futu

res

Net Spec Position

No11 Futures

International Sugar Organization7

But …. they are also in other markets

Commodity Change in spec position since Jan (% of OI)

Price Correlation

Recent direction

Market mood

Coffee -14% 0.86 down bearish

Cocoa 0.2% 0.89 down bottoming

Kansas Hard Wheat 20% 0.83 flat bullish

Corn 6% 0.86 flat recovering

Soybeans 2% 0.77 sliding bottoming

Sugar -11% 0.11 down bearish

International Sugar Organization8

And …. there are currency markets

• Continued talk of Mexican deliveries

• Big swing in CS Brazil ethanol allocation despite Reais

• Indian Rupee steady

• EU exports unprofitable

Market outlook

International Sugar Organization9

• Spreads will continue to pay a carry (but not in the whites….)

• Speculative interest in sugar could wain

…. other markets have better “stories”

• Dollar strength / Reais weakness should cap upside

• But there are changes taking place in the commercial market

World Sugar in flux

International Sugar Organization10

Forecasting the Market Movements

Export availability…

International Sugar Organization11

0

5,000

10,000

15,000

20,000

25,000

30,000

Export availability in 2018/19 (kmt) • CS Brazil production – down 6mmt and Apr-Aug export –down 3.3mmt

• Thai mills are allocating higher volume to whites –4.1mmt remelt

• Indian mills not selling at current prices

CS Brazil Ethanol / Sugar Export

International Sugar Organization12

Production totals2014/15 – 32 mln2015/16 – 31.2 mln2016/17 – 35.6 mln2017/18 – 36.1 mln2018/19 – 30 mln-ish

Other ethanol thoughts

International Sugar Organization13

• Oil looks steady near $70

• WTI and Brent are diverging – eliminates Shale Gas

• Other ethanol programmes remain molasses-focused but are expanding

Key drivers for refiners – freight and WP

International Sugar Organization14

…and import demand

International Sugar Organization15

• Indonesia licences are not price-sensitive

• China raw sugar imports now on level playing field

• Bangladesh / UAE steady

• EU imports disappoint

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Domestic Prices

International Sugar Organization16

0.5

0.75

1

1.25

Jan-17 Jul-17 Jan-18 Jul-18

Domestic Prices in Local Currencies

ISA DP

China, ZCE front-month

India, NCDEX M200, front-month

Mexico, Estándar

• ISA price has fallen by 45%

• Mexican consumers have not seen any change

• Indian consumers have seen a 17% reduction

• Chinese consumers get a 29% reduction, but import taxes have increased….

Changing Trade Landscape

International Sugar Organization17

• From WTO to UN SDGs

• Bilateral Trade Agreements to binary trading routes

• Single-origin traders / brokers => inflexible trading books

The traders’ dilemma

International Sugar Organization18

Conclusions: Market in flux

Surplus

Consolidation / Rationalisation

Price / Spreads

Export (bilateral)

Ethanol

International Sugar Organization19

Forward View

International Sugar Organization20

• No obvious increase in industry capacity although de-bottlenecking continues

• No weather guarantee

• Indian swing-cycle returns

Thank you

Peter de Klerk

Senior Economist

International Sugar Organization

International Sugar Organization21