Food and ethanol demand for sugar crops will be sustained over the medium term, maintaining high sugar prices.
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World sugar prices continued to experience tremendous volatility in the lead up to this year’s Outlook. Prices in 2011 bounced between highs and lows as market fundamentals remained obscured under a shroud of conflicting information: early projections of an emerging global surplus and, at the same time, ongoing tight supplies and high prices in several markets. For example, adverse weather and low yields resulted in a large drop in production in Brazil, the leading sugar producer exporting nation, after consecutive years of increases.
Apart from sugar fundamentals, commodity markets in general have seen prices giving way to a generally weaker macroeconomic environment, rising oil and energy prices, and expectations of increasing supplies. World sugar prices started 2012 at lower levels and are expected to continue a downward drift over the remainder of the year as the global sugar market returns to a significant global production surplus in 2011/12 (October to September crop year) in response to recent high prices. This would follow a neatly balanced market in 2010/11 and large global deficits in the previous two years. With world sugar production in the current season estimated at a new record level, this is expected to allow some stock rebuilding to commence.
Overall, global stocks and stocks-to-use ratios will remain at relatively low levels at the beginning of the Outlook period.
- The raw sugar price (Intercontinental Exchange No. 11 contract nearby futures) is projected in nominal terms at USD 483/t (USD 22 cts/lb) in 2021/22. While slightly lower than at the start of the outlook period, sugar prices are expected to remain on an elevated plateau and to average higher over the projection period in both nominal and real terms (when adjusted for inflation) than in the last decade. White sugar prices (Euronet, Liffe futures Contract No.407, London) follow a similar pattern to raw sugar prices and are projected to be at USD 566/t (USD 26 cts/lb.) in 2021/22. A relatively large white sugar premium at the outset is expected to narrow over the course of the outlook period, averaging around USD 82/t, as additional white sugar supplies come on stream from new refineries.
- High price volatility has been a significant feature of world sugar markets. Looking forward, further bouts of price surges and volatility remain a clear possibility in response to unforeseen production shocks in major producing countries, and particularly while global stocks remain at historically low levels. Market volatility will also reflect the continuing production cycles in India and some neighbouring countries of Asia, existing government policies that intervene in sugar markets and fluctuations in oil and energy prices around a high and rising trend.
- Structurally higher and remunerative sugar prices are expected to encourage further growth in global sugar crops, mainly sugarcane. Global sugar production is projected to reach 208 Mt by 2021/22, up 43 Mt or 26% above the average for 2009-11. Larger sugarcane harvests are projected in Brazil to reach over 1.1 Bt by 2021/22. This will cement Brazil’s position as the world’s leading producer and trading nation, and, along with an increasing share of cane allocated to ethanol production, will be among the leading determinants of global sugar production and world prices over the coming decade. Increasing global production from Brazil and other countries should allow stock rebuilding to accelerate initially, but steady global consumption growth of 2.1% p.a., on average, is expected to eat into sugar supplies and lead to a decline in the global stocks-to-use ratio in the second half of the projection period, providing support for high market prices.
- The outlook for high fructose corn syrup (HFCS), an alternative caloric sweetener to sugar, is for an increase of around 13% in both production and consumption, which are projected to reach 16.3 Mt and 15.9 Mt, respectively by 2021/22. HFCS production and use is projected to expand in China and with consumption to increase in Mexico based mainly on imports from the United States, as part of two-way trade with sugar shipments to the United States, in an integrated sweetener market between these two countries under NAFTA.