World sugar update – August 14, 2008
OCT08 (ICE) world sugar has traded in a tighter range this week, and activity through Wednesday looks to support more of this rangebound pattern. Brazil’s sugar production is behind last year’s pace for early August, but we do not have any serious concerns for the Centre-South crop, and the gap should be closed by the end of the month. The market has reacted to circulating news that Brazil’s sugar production will be lower, but even a slight pullback will not make much of a difference in the global S-D. Further, while we do expect a reversal later in the year, if corn futures continue to soften, this pushes the decision to produce sugar or ethanol from sugarcane back in the favor of sugar, pressuring futures downward. India’s crop numbers have been taken down, and this is currently priced in global supply projections – next year’s crop potential will be even more constructive to the market. Global surplus estimates for the 2008/09 (Oct/Sep) crop year are now between 1 and 2 mmt, which is down from all earlier estimates. As attention turns to 2009/10, the pattern for next year becomes more important, and will be discussed in detail in our monthly global commodity outlooks. In related markets, crude (NYMEX) is now higher following the EIA’s inventory reports, which showed larger decreases in inventory for both crude oil and gasoline (bullish sugar signal). Also, the USDA increased their crop expectations yesterday, which and projected a larger corn crop (which the WTI forecast does not agree with) and a smaller soybean crop, both of which are factors in Brazil’s sugar/ethanol decisions. The short-term view for OCT sugar futures is for more action in the 13.45 to 13.85 cent range, with more downside potential; the low end of this range is near the 50d moving average. We still see MAR09 trading a sizable premium, with the possibility of a supply deficit in 09/10. Technicals this morning are slightly biased to the downside.
We return again to the potential for the Indian crop (current and next crop year). Refer to the weeky Indian rainfall chart that we showed last week, as this stresses the importance of the spatial distribution of rainfall totals associated with Indian Monsoon behavior, and the subsequent yield limiting potential for the current crop. There is a NW-SE axis that essentially splits India’s sugarcane growing regions in two; the monsoon pattern thus far seems to have followed a similar split flow pattern. The more heavily producing north has received healthy, and possibly too much, rain during the current campaign, while the southern growing areas were hit by excessive dryness following the good start in June. The soil moisture profile highlights the situation, as saturated soils and wet conditions increases the risk of disease pressure and slows harvest, while the dryer soils in the south are not retaining much water. Further, closer analysis of satellite derived vegetation health indices are indicating additional stress across the southcentral and southern regions of the subcontinent, where conditions are worse than both last year and normal. The current rainfall pattern is helping, but it will be challenging for growers to make healthy yields during this year’s crop.
