Can the sugar bull be tamed by a liberal Indian export policy?

Focus on Futures - Sugar

Weather in Brazil for the soon to be harvested 2012-13 crop has not been ideal. Production is expected to improve after last season’s uncooperative weather caused the first year-over-year drop in production in 11 years. But the crop will not reach the level achieved two years ago. Many plantations needed to be replanted, so full production is not expected until the following crop year, in 2013-14.

Brazilian cane output is shared by the sugar and ethanol industries. The government’s minimum ethanol blend requirement for cars was lowered from 25% to 20% back in October to alleviate a very tight market.

Export demand for ethanol competes with domestic demand. The market is so tight that Brazil has been importing from the US. In fact, Brazil is currently the largest foreign importer customer of US corn-based ethanol.

In 2011-12, 51.4% of the cane crop was used for ethanol. One early estimate puts this year’s ethanol portion at 53.8%.

Other important sugar exporters, such as Thailand and Australia, have had excellent crops. Exports will be at optimum levels. Analysts estimate that the global balance sheet for 2011-12 will show a surplus of about 5 million tonnes.

Nevertheless, the action in the sugar market over the past few years has demonstrated clearly that bull and bear markets in sugar result from surplus and deficits in Brazil and India. Everything seems quite comfortable now. India’s liberal export policy has served to ease the potential for tightness that could result from Brazil’s second consecutive year of subpar production.

Global demand for ethanol will continue to grow, and Brazil will remain under pressure to meet both domestic demand and deliver on its export commitments without sacrificing sugar output.

Maintain long May sugar positions. Place stops at 23¢ per pound, close only.

May Sugar

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About the Author
Sholom Sanik is an analyst with Friedberg Mercantile Group Ltd. He can be reached at ssanik@friedberg.ca
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