Worldwide sugar prices have fallen in the second quarter (Q2) of 2012 as the market is projected to record a surplus for the next two seasons, according to Rabobank International.
However, EU sugar prices remain high partly due to quotas set by the European Union.
In its ‘Sugar Quarterly – Q2 2012’ report, Rabobank said that strong harvests in Thailand and India had added to the certainty of a substantial surplus in the current crop year and had driven prices down.
New York raw sugar futures fell around 20% from the first week of March to the final week of May to US $19.8/lb, with a projected surplus that may keep prices down.
“With the Thai and Indian harvest at their closing stages, and with both having fulfilled their earlier promise, the projected substantial global surplus for 2011/12 has truly arrived,” said Rabobank.
A surplus of 4.6m tonnes is also expected for the next season (2012/13) on the strength of Indian and Thai crops, which could keep prices at current levels.
High prices in EU
However, EU prices remain high, averaging at €711 per tonne in Q2.
Rabobank predicts an “above-average” crop for the 2012/13 season as farmers look to capitalise on high prices.
The report said that EU sugar buyers had indicated that prices were higher than the official €750 per tonne figure reported by the European Commission.
The Commission recently allowed an additional 250,000 tonnes of non-quota domestic sugar to combat rising prices following calls from industry bodies such as CAOBISCO.
Consistent price drop in US
US sugar production is expected to be up 7.5m tonnes in 2011/12 versus the previous year which has led to a consistent price drop since October last year, according to Rabobank.
In its report, the financial services group pointed to USDA data that showed the US market would need 3.3mmt of sugar imports to satisfy demand as Mexican imports fell by half.
Brazil and weather threats
“Following the onset of the Centre/South harvest, Brazil will remain firmly in the spotlight in the coming months, with weather developments being fundamental to the progress and the quality of the crop,” said Rabobank.
Concerns have been mounting over possible El Nino weather conditions that could threaten crops, however even if Brazil were have a poor output Rabobank predicts that the surplus could be reduced by 2m tonnes, but it would not significantly alter global supply demand balance.
However, if the Brazilian government were to introduce measures to improve the profitability of ethanol, a larger share of the crop could be diverted from sugar production to ethanol.