September 1, 2016 - There is just one month left to go of the current 2015-2016 sugar campaign in Europe. Then the market will begin the final 12 months operating under quotas before a dawn breaks on a new era of liberalization.
Much will remain the same: the cyclical nature of the agricultural seasons and fluctuations in trading activity to name but two examples.
August has been a subdued month for spot business locally and internationally, as like the rest of us the sugar industry took a well-earned break during the summer. But eyes will now be trained on the progress of the beet crop and the weather, where the Goldilocks principle comes in useful: not too hot, not too cold, not too wet, and not too dry -- but just right.
Analysis continues below...
Read on for the latest market summary from our sugar team.
Export levels steady: With futures continuing to trade sideways, moved only by technical action rather than fundamental shifts in supply and demand, the week’s pricing action was again limited. Following deals seen in the UK at the start of the month for the fourth quarter at Eur550/mt Delivered Duty Paid (DDP), we are now hearing that the rest of NWE has prices at similar levels.
Traders confirmed similar deals for industrial buyers in the week ending September 2 in both France and Belgium. Southern European prices are quoted in the region of Eur570-Eur580/mt. Containers, meanwhile are unchanged in the spot market, with little demand still heard, leaving prices in line with the October contract FAS Antwerp.
Small pockets of demand: Spikes in demand have been intermittently heard from smaller buyers unable to secure material as the end of the campaign approaches. These buyers are typically in the market as they have a limited capital to purchase large inventories and store them.
This is not a particularly new story, however. Where it was Italian and Spanish ice cream manufacturers in weeks past, now it is the turn of German and French confectionery and soft drink manufacturers to feel the squeeze. Larger industry buyers, however, appear to remain unaffected.
One source said they expect such shortages to persist in the short term for small and medium producers, but added that they see the situation resolving itself from the beginning of the new campaign on October 1. Furthermore, as with much else in the EU market, there will continue to be regional disparities that drive price movements.
Production outlook: Looking ahead to October, weather concerns remain a factor with further discussion over the week of recent news from France and Belgium of adverse weather affecting the beet.
At least some traders and producers are considering a modest shortfall in production over the rest of NWE due to unfavorable weather conditions. The market seems to believe that the wider EU sugar beet crop is heading in a similar direction, with lower production forecast by most — including Platts Analytics’ Kingsman.
We put EU production (excluding Croatia) slightly lower on the year for 2016-17 (October-September) at 15.31 million mt, down from 15.23 million mtwv (16.643 million mtrv) in 2015-16, we point to higher sugar yields that are expected in Germany and Poland on the basis of recent beet tests there.
However, again Belgium has led the way with production expectations below 800,000 mtwv due to the lowest agricultural yields and sucrose content in beet tests at the beginning of August. Beet prospects better beyond borders: While it might not be pretty in the EU, it is not all bad news across Europe.
If one looks over the border at Russia and Ukraine, there have been positive signs in the earliest results of the 2016-17 campaign which is already underway in some parts. Early news from the Russian Ministry of Agriculture has extolled early harvest volumes and yields in Krasnodar, Tambov, Penza and Ulyanovsk.
Looking at Kingsman’s supply and demand forecasts in the week ending September 2, in Russia we increased production for 2016- 17 (August-July) to 5.66 million mtwv (6.155 million mtrv) from 5.55 million mtwv.
We have raised the extraction rate to 14.8% from 14.5%. According to the latest beet tests mid-August, results were a little disappointing — sucrose content was little lower on the year at 14.39% compared with 14.43%, but the root weight was a little higher at 417 grams compared with 411 grams in 2015.
Final acreage according to the industry data was 1.1 million hectares, 30,000 ha more than we expected. For Ukraine we increased our sugar production forecast for 2016-17 (August-July) to 1.86 million mtwv (2.03 million mtrv) from 1.77 million mtwv due to higher sucrose content in the beet (15.2% up 5% on year) and therefore a higher extraction rate, now expected to be 14.31%, up from 14% earlier.
Also agricultural yields expectations were increased to 46 from 45 mt/ha, bringing total beet processed to 13 million mt, up from 12.7 million mt.
To look at the Black Sea region as a guide to production in the rest of Europe may be may be a step too far for some, although the recent narrative in the sugar market echoes that seen in another agricultural market.
Wheat, of which there have been higher volumes and yields in both Russia and Ukraine this harvest year, has taken a significant knock in Western Europe, where both volume and quality were significantly impeded by wet weather and a lack of sunshine over the early summer.
However, it is not as if we already have a definitive answer on the state of the crop in the EU. At least one trading source has expressed guarded skepticism about all the recent bad beet test news.
“We need to wait a good two weeks’ time before we know the actual state of the crop,” the source said. Adding that while some seem to be taking the poor beet test story and running with it, the majority of the of the sugar trade “are not buying the story — at least not yet.”
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