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World Sugar Situation
Forecast production and exports for the upcoming 2002/03 season indicate a possible record. Although consumption looks to remain firm, import demand is expected to slacken as principal importing countries of Russia, and Ukraine look to reduce imports in the face of increasing domestic production. Forecast production increases in the EU, Brazil, Australia, South Africa, Thailand, and China may put downward pressure on prices.
World refined sugar prices, as expressed by the London Daily Contract No. 5, remained firm throughout the 2001/02 marketing year, in part due to the reduced EU production. However, during the last several months, refined prices weakened while the world price for raw sugar strengthened. This weakening of the refined price may have been in response to expected higher output of refined sugar by the EU and Brazil. Brazil forward-contracted a sizable portion of its raw sugar and at the same time increased production and export of refined sugar. Hence, the 4-cent spot market premium between refined and raws prevalent during the 2001/02 marketing year narrowed to about one cent, as the supply of Brazilian raws tightened while the supply of EU refined expanded. Other factors may also be at play, such as the slight reduction of forecasted Brazilian production, speculation over the Brazilian election, and uncertainty surrounding the Brazilian currency depreciation.
production for 2002/03, in the five principal exporters, the EU, Brazil,
Australia, Thailand, and South Africa, is forecast to increase by 4.8 million
tons (11 percent) from the 2001/02 season.
Estimated increased production for 2002/03 in China and Russia is sure to
disappoint exporters. These two countries
together accounted for about 17 percent of total 2001/02 world imports, and
shippers were hoping these markets would assume an increasing share of world
imports. However, production in
these countries is forecast to increase
(by a total of 668,000 tons, or by 14 percent over 2001/02 production).
Consequently, a portion of the new supplies coming onto the market must
find a home in other markets. Hopefully,
any downward pressure on prices may offer increased incentives for imports in
African, Asian, and Middle Eastern nations and increase shipments to those
countries. These regions are important because imported sugar accounts
for a significant portion of their consumption.
Sugar remains a principal source of inexpensive energy and is attractive
when compared to alternative commodities. Import
demand for sugar in African countries, which as a group accounts for over 13
percent of world imports, may well increase should the price remain low and if
drought conditions continue, causing an increased demand for low cost high
Over the last 10 years, world consumption grew at a fairly steady pace of about 1.9 percent per year. Domestic demand for sugar in 2001/02 remained steady, increasing 1.7 percent from the previous year. Forecasted 2002/03 world domestic consumption is set at 133.2 million tons, up 1.2 million tons from the current estimate for 2001/02. Consumption is growing fastest in Asia, with India leading this group and Korea and Malaysia also showing significant increases. Nevertheless, it appears that worldwide economic slowdown may be affecting the demand for imports, as the overall rate of growth for domestic consumption is showing signs of slowing down.
World and U.S. Raw and Refined Sugar Prices
|World Raw Sugar Prices 1/|
|(Cents Per Pound)|
Contract No. 11 F.O.B stowed Caribbean port (including Brazil) bulk
Source: New York, Coffee, Sugar, and Cocoa Exchange
|World Refined Sugar Prices 2/|
|(Cents Per Pound)|
Contract No. 5, London Daily Price for refined sugar,
F.O.B. Europe, spot.
Source: LIFFE, London
|U.S. Raw Sugar Prices 3/|
|(Cents Per Pound)|
Contract No. 14 Duty-Free paid, New York.
Source: New York, Coffee, Sugar, and Cocoa Exchange
|U.S. Wholesale Refined Sugar Beet Prices 4/|
|(Cents Per Pound)|
Source: Milling and Baking News
In addition to the tariff rate quota (TRQ), the U.S. Trade Representative (USTR), also announced that 20,344 metric tons of the refined TRQ not reserved for specialty sugar (13,656 metric tons) or Mexico=s NAFTA allocation (137,788 metric tons) is being allocated in the following manner: 10,000 metric tons (11,354 short tons) is allocated to Canada, and 2,954 metric tons (3,256 short tons) is allocated to Mexico. The remaining 7,090 metric tons (7,815 short tons) of the in quota quantity may be supplied by any country, subject to any other provisions of the law, on a first come, first served basis. The 13,656 metric tons (15,053 short tons) reserved for specialty sugars may also be supplied by any country, subject to any other provisions of the law, on a first come, first served basis.
With respect to the TRQ for
certain sugar-containing products maintained under Additional U.S. Note * to
chapter 17 of the Harmonized Tariff Schedule of the United States, 58,250 metric
tons (65,312 short tons) is being allocated to Canada.
The remainder of the sugar-containing products TRQ is available for other
countries on a first-come, first-served basis.
Total imports of raw and refined sugar from Mexico entering under NAFTA allocation may not exceed 137,788 metric tons (151,885 short tons).
Brazilian sugarcane production for 2002/03 is estimated at 320 million tons, down 4 percent from our previous projection, due to weather related problems. The Center-South (CS) harvest is expected to be over in November, whereas the North-Northeast (NE) crushing season has just started. Total sugar production for 2002/03 has been revised downward to 22.75 million tons, raw value to reflect updated sugarcane availability. Brazil’s 2002/03 sugar exports are projected at 13.1 million tons, raw value, up 13 percent from 2001/02, reflecting higher availability of the product and the steady depreciation of the local currency. As of July 1, 2002, the Brazilian Government set total alcohol content in gasoline at 25 percent. On September 27, the Brazilian government requested consultations on European sugar subsidies at WTO.
Brazil’s sugarcane production for marketing year 2002/03 (May-April) is projected at 320 million tons, down 4 percent compared to the previous estimate, especially due to a downward revision in the (CS) region projection. The CS is expected to contribute 270 million tons of sugarcane, down 12 million tons relative to the previous projection.
The estimate for area planted to sugarcane remains unchanged at 5.07 million hectares. Total area for harvest is projected at 4.81 million hectares. In spite of the good market prices for both sugar and alcohol, sugar-alcohol mills have been adjusting their finances rather than investing in new sugarcane areas.
The average Brazilian yield for sugarcane production is estimated at 66.5 tons per hectare, a 4 percent decrease compared to the previous figure as a result of the dry weather that prevailed during the April/May to August period. The dry weather has, in turn, supported good industrial yields and the updated projection for the 2002/03 industrial yield is 141.23 kg of total reducing sugars (TRS) per metric ton of sugarcane, up 2 percent from previous projection.
The 2002/03 TRS breakdown for sugar and alcohol production is estimated at 49.8 and 50.2 percent, respectively, similar to the 49.2-50.8 percent adjusted breakdown for 2001/02. Total TRS for the 2002/03 crop is projected at 45.19 million tons, up 4.19 million tons relative to 2001/02. The expected decrease in the sugarcane output has been partially offset by higher industrial yields.
Total Brazilian sugar production for 2002/03 is estimated at 22.75 million tons, raw value, slightly down from previous projection, but up 2.35 million tons from the revised production estimate for MY 2001/02 (20.4 million tons , raw value). The CS should account for 19.4 million tons of sugar, whereas the NNEE should account for the remaining 3.35 million tons. Total alcohol production for 2002/03 has been revised downward to 12.5 billion liters (7.05 billion liters of anhydrous alcohol and 5.45 billion liters of hydrated alcohol), down 0.5 billion liters from the previous forecast. The 2002/03 updated projection is, however, 1.03 billion higher than the final official figure for 2001/02 alcohol production, as reported by MAPA (6.48 billion liters of anhydrous alcohol and 4.99 billion liters of hydrated alcohol).
The 2002/03 projections indicate that most of the expected reduction in sugarcane production is likely to affect total alcohol output, vis-a-vis sugar production. Note that alcohol projections take into account the alcohol content in the gasoline-alcohol mixture, set at 24 percent from May 1 to June 30 and at 25 percent as of July 01, 2002, as determined by the Brazilian Government. Projections also take into account the projected increase in alcohol demand as a consequence of projected growth in the automobile fleet and alcohol exports. In addition, the significant difference between alcohol and gasoline retail prices in the domestic market has led many car owners to use a 50 percent hydrated alcohol and 50 percent gasoline blend ("rabo de galo"), thus increasing total alcohol demand. Alcohol stocks are likely to be notably low by the end of the marketing year despite the initial projection of rebuilding alcohol stocks.
In spite of the expected higher sugar supply, sugar prices in the domestic market have remained stable even during the peak of the crushing season. Sugar and alcohol prices are not balanced and sugar prices for the domestic market have an advantage over sugar for export prices and alcohol prices for the domestic market. Alcohol prices are somewhat depressed and the market should correct the price distortion in the short term. According to a study conducted by Datagro, a consulting company working in the sugar-alcohol business, prices by the end of August were R 22,46 per 50 kg of sugar for the domestic market, R 565,00 per liter of anhydrous alcohol, and R 465,00 per liter of hydrated alcohol. Using sugar export prices (US$ 5.98 cents per pound at the end of August) as a basis for comparison results in the following price equivalence: US$ 6.46 for sugar for domestic market; US$ 5.17 for anhydrous alcohol and US$ 4.59 for hydrated alcohol. The price equivalences indicate that sugar for the domestic market is clearly preferable (+ 8 percent compared to sugar export prices), followed by anhydrous alcohol (- 13.5 percent) and hydrated alcohol (-23.2 percent).
Total Brazilian sugar exports for 2001/02 have been adjusted upward to 11.6 million tons, raw value, up 0.25 million tons to reflect updated information from the Brazilian Department of Foreign Trade (SECEX). Brazilian sugar for 2002/03 exports are revised downward to 13.1 million tons, raw value, a 3 percent decrease from previous figure, but up 13 percent relative to 2001/02 to reflect the new sugar production estimate as well as to balance sugar and alcohol demands in the domestic market. Contrary to market expectations, sugar prices in the international market did not drop sharply as a result of higher Brazilian export volumes. The steady depreciation of the local currency, the Real, has contributed to increased exports.
Sugar production for 2001/02 is revised downward to 5.16 million metric tons, raw value, slightly less compared to 2000/01 production. The overall mill yield increased from 11.07 percent in 2000/01 to 11.36 percent in 2001/02. However, dry weather in Veracruz affected overall cane yields, which decreased from 73.5 tons per hectare in 2000/01 to 70.4 tons per hectare in 2001/02. Some of the measures the government implemented through the National Sugar Policy have enabled the sugar industry to have access to more credit lines in order to pay cane producers on time. Also, better government management of the expropriated mills led to a more orderly marketing of the sugar, which resulted in better producer and market prices. In fact, sugar prices at the wholesale market had fewer fluctuations during 2002 than in 2001.
According to industry information, HFCS production is expected to be 150,000 tons, compared with 250,000 to 350,000 tons in 2001. The main reason for this decrease in production was the imposition and subsequent recall of the 20 percent duty imposed on HFCS-containing soft drinks and beverages. This tax first took effect on January 1, 2002, but was repealed by President Fox two months later. On July 12, 2002, the Supreme Court of Justice unanimously voted for the immediate re-imposition of the 20 percent duty on soft drinks and beverages that contain HFCS. This decision nullified a previous Presidential decision in March 2002, which had suspended the tax until September 30, 2002. After Fox=s decision to temporarily revoke the tax, Mexican legislators brought the case to the Supreme Court, contending that the executive branch=s ability to repeal a tax passed by Congress was unconstitutional. The Supreme Court decision of July 12, 2002, ruled in favor of Congress on these grounds of unconstitutionality. However, this decision did not rule on the fairness of Congress= initial imposition of this tax. As a result of the imposition of this duty, all bottling companies in Mexico that were using HFCS in their products, switched to cane sugar in their product formulas. In fact, the bottling companies had already switched to sugar since the tax was first announced on January 1, 2002, and almost no HFCS has been sold to soft drink bottlers in Mexico. At this point, it is uncertain what the production estimate will be for calendar year 2003, since this will depend on the outcome of the North American Free Trade Agreement (NAFTA) sugar negotiations.
Much of the corn used for HFCS production is imported from the United States under the NAFTA (TRQ). In 2001, the wet-milling industry imported a total of 1,947,743 tons of U.S. corn under the TRQ, of which approximately 770,000 tons were destined to HFCS production for the soft drink, bakery, food processing, fruit canning, and yogurt industries. Since no HFCS is being used by the soft drink industry, corn imports under the TRQ destined for HFCS production for 2002 are expected to diminish by half. Mexican production of HFCS is not published by official sources and companies treat it as confidential information.
The forecasted 2003 planted area for both sugar cane and sugar beets is revised upward to 1.31 million hectares and 525,000 hectares, respectively. The total sugar production forecast for the same period has been reduced to 8.41 million tons from the earlier forecast. The sugar production estimate for 2002 has been reduced to 7.87 million tons (raw basis). The planted area estimates for beets and cane for 2002 have been increased to 406,000 hectares and 1.24 million hectares, respectively.
Planted area in the Guangxi Autonomous Region is forecast to increase 5.8 percent to 610,000 hectares in 2003, compare to the 2002 estimate of 575,000 hectares. The Guangxi provincial government continues to consider sugarcane a key industry worthy of support. The policy objectives and support measures include: 1) increased use of the Land Conversion Program, including policies designed to reduce the cane planted area by approximately one million hectares, mostly land on steep hillsides; 2) increased size of cane growing operations through consolidation of small plots; and 3) to increased planting of high-yield varieties of sugarcane with the goal of increasing yields to 100 tons per hectare from the current 60 tons per hectare.
In Yunnan, sugarcane area in 2003 is forecast at 278,000 hectares and 169,000 hectares in Guangdong Province. Unlike Guangxi Province, the government of Guangdong Province does not pay its cane growers support payments. Guangdong’s coastal location and strong economy provide numerous profitable alternatives to sugarcane production.
Regarding sugar beet production, the area planted forecast for 2003 is revised upward 33 percent. The greatest increases are expected to occur in the interior provinces such as Xinjiang, where planted area is forecast to increase 7 percent to 92,000 hectares in 2003 compared to 2002. In order to reduce the production cost and increase incomes of sugar cane producers, Xinjiang Autonomous Region introduced several new varieties of sugar beets from Germany. These varieties reportedly can increase yields 15 percent. Sugar beet planting area for 2003 is forecast at 207,300 hectares in Heilongjiang and 65,000 hectares in Inner Mongolia, up 12.2 percent and 11.2 percent, compared with 182,000 hectares and 58,000 hectares in 2002, respectively.
The estimate for 2002 sugar production is revised downward to 7.87 million tons; and the sugar production forecast for 2003 is revised upward to 8.41 million tons from the previous forecast of 7.8 million tons. The wholesale price for sugar decreased 22 percent to US$300/ton by September 2002 compared to US$383 in October 2001. Most sugar processing plants in China are losing money because the average production cost is US$333/ton for sugarcane and US$366/ton for sugar beets. Representative regional cane production costs (US$/ton) in the southern cane-growing provinces are as follows: 1) Guangxi (US$323); 2) Guangdong (US$342); and, 3) Yunnan (US$333). Many small refineries that closed over the past several years reopened in response to the high sugar prices of the preceding year. A large number of these were privatized, thus the local governments cannot control their production. Furthermore, they recognize that the refineries are important sources of both tax revenue and employment, so they leave them alone. Their long-term viability, however, will depend on sugar prices.
The Turkish sugar industry continues to undergo major changes as a result of the Sugar Law, which was adopted in April 2001.
In March 2002, for the first time in Turkey, the Sugar Board announced sugar and corn-based sweetener production quotas. According to the Board’s decision, Turkey should produce 2,360,000 tons of sugar in 2003 (September 2002-August 2003). Of this total, 2,149,000 tons (2,336,000 tons raw value) will be centrifugal sugar. The quota for corn-based sweetener production is 234,100 tons. The Council of Ministers recently raised the corn-based sweetener quota by 50 percent to 351,150 tons at the request of producers. Sweetener producers noted that the industry is only able to utilize a small proportion of its total capacity. All beet-sugar production is allocated to the Turkish Sugar Corporation (TSC) and PANKOBIRLIK. TSC will produce 1,675,000 tons (1,821,000 tons raw value) and PANKOBIRLIK will produce 474,000 tons (515,000 tons raw value) of centrifugal sugar.
The quota allocations pleased neither beet nor starch-based sweetener producers. Beet sugar producers will only receive the announced procurement price for their assigned production quotas. Any excess production cannot be sold domestically. Payment for exported sugar will be based on world market prices, that are considerably less than domestic prices. The TSC will not procure any beets, which exceed a farmer’s quota by 25 percent. On the other hand, if a farmer produces a significantly lower quantity than he is assigned, his quota will be reduced for the following year.
Corn starch-based sweetener producers are also unhappy because the announced quota would force them to operate at 39 percent of capacity. Total capacity in this industry is currently 900,000 tons.
Weather conditions were very good for sugar beet production this past spring. Area planted and harvested, as well as sugar beet production for 2003, were all revised slightly downward according to industry sources. The beet sugar production estimate, however, remained unchanged.
Beginning marketing year 2003, the Government of Turkey (GOT) will not announce a procurement price for sugar beets. Instead, TSC and PANKOBIRLIK will announce procurement prices independently. PANKOBIRLIK and TSC can set different prices for the first time.
Similar to beet procurement prices, TSC and PANKOBIRLIK will set ex‑factory prices for sugar separately in accordance with their production costs, starting from 2003. The following table summarizes the changes in ex-factory prices, which were announced by the TSC and also used by PANKOBIRLIK plants, [Turkish Lira (TL) per kilogram, value-added tax (VAT) included].
Type of Sugar
Dec. 28, 2001
May 31, 2002
June 28, 2002
Aug. 7, 2002
- In 50 kilogram bags
- In 50 kilogram bags
- In 1 kilogram box (25 boxes)
(As of 9/30/02, US$ 1.00 is approximately TL 1,660,000 compared to TL 1,300,000 on 4/15/02)
Market forces determine retail prices. The Confederation of Grocers and Supermarkets (retailers association), which used to suggest sugar-selling prices to members, no longer does so as a somewhat freer market now exists.
Consumption estimates for centrifugal sugar for 2001, 2002, and 2003 were revised downward due to increased corn-based sweetener consumption and the economic crisis that somewhat reduced dessert and patisserie consumption in Turkey.
According to the Russian State Statistics Committee, Russia’s growers planted two percent more area in sugar beets in 2003 than 2002 and four percent more in 2002 than in 2001. In 2003, however, production will be less due to weather problems. Sugar yields were affected by wet weather in some regions and dry weather in others. In 2002, good growing and harvesting conditions promoted a slightly above average yield.
Sugar consumption in Russia continues to increase slowly, about one percent in 2002 and 2003. Consumption growth is linked to the general increase in food demand, especially processed foods, as incomes improve.
a TRQ and import tariffs regulate the volume of Russian sugar imports.
Further increases in the TRQ are expected in the coming years as
consumption growth well outpaces domestic production.
Significant imports of sugar over the quota are not expected due to
rising exchange rates, higher supplier premiums, and problems related to raw
sugar imports from Brazil. However, if producing countries’ exchange rates fall
significantly in relation to the Russian ruble, Russian imports outside of the
quota could rise above estimates.
In preparation for a Russia‑Cuba bilateral protocol, there has been discussion of an oil for sugar swap. However, no concrete agreement has been reached. Though pricing terms and quota implications are unclear, any such agreement would likely displace rather than supplement current imports.
traders expect a price rise in the near term as firms adjust prices in the wake
of the recent TRQ quota sale. Reports
indicate that a general market price rise will take place as firms incorporate
the significantly higher price paid for the new quota imports.
While the prices paid for parts of the sugar quota were still below the
over-quota tariff, the difference narrowed.
Naturally, prices are highest in the non-sugar producing regions and
lowest in the regions that are now harvesting local sugar beets, with the
difference often greater than ten percent.
sugar prices continue to be relatively unstable. For example, at the end of August 2002, sugar prices jumped
from $370 to $460 per ton in the Krasnodar region.
However, the rapid price growth was quickly replaced by a downturn to
$440 in early September and then a $1-3 per ton daily price slide.
While prices in Russia have generally stabilized, regional prices still
experience considerable fluctuation due to poor price transmission from the
importing ports to the inland regions.
Stocks of sugar are falling due to the TRQ regulated market structure. While the TRQ volume remains considerable, traders know the prices paid for quota shares and have ceased creating large stock overhangs as a result of uncertainty about import policies. While stocks have decreased significantly in the past two years, further stock decreases after 2003 are expected to be moderate.
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