Rabobank: El Niño will slow sugar production and keep prices up

Rabobank says in Brazil, wet weather has made production more difficult, tightening global supplies.

Rabobank’s Sugar Quarterly Q4 2015 says sugar prices this quarter are recovering on the back of a supply deficit caused in part by El Niño. However, prices will continue to be tempered by volatility and the weakening of major producer Brazil’s currency.

Prices fell sharply at the beginning of November from 15.5c a pound to 14.0c a pound, but then recovered, a pattern repeated in the first two weeks of December.

The Brazilian Sugarcane Industry Association attributed these drops to slowing demand for cane sugar in ethanol production. Rabobank, meanwhile, highlighted the effect of rain on cane in central and southern Brazil, warning that this could affect the quality as well as quantity of sugar.

“There are now questions regarding how much of this cane will be milled before the season effectively ends,” the report said.

Rabobank adds that producers are unlikely to extend the milling season unless under strong immediate financial pressure, as the drop in supply will keep prices from falling much lower.

Wet weather and failure to complete mechanical repairs in time will also affect production in Mexico. Conversely, dry weather in Asia means there are doubts over how crops there will fare.

In Europe, less land on which to grow beet will result in the region producing 4 million tonnes less sugar in 2015-2016 than last year. Germany, France, the UK, Poland and the Netherlands have seen the most significant decreases in production.

It is a more positive story in Australia, where the cane harvest  is nearly complete. Crushing in some areas finished early. The country is expected to reach production levels of between 4.7 and 4.8 million tonnes in 2015-2016, the highest since 2006.