NOVEMBER 23, 2016
What happens to sugar production after strong El Nino years? This graph shows the production of the top three sugar exporters during these years. Notice the consistent increase in production (5/6 years) in India and Thailand (93/94 only exception, weak El Nino→bad for SE Asia Monsoon). In Brazil, production increased 5/6 years (2011 had flooding, strong La Nina). As we have been forecasting a weak La Nina, this should lead to good sugar production in all three countries. THIS IS A LONGER TERM BEARISH SIGNAL IN SUGAR DISCUSSED IN OCTOBER, 2016
Current Brazil rainfall forecast matches our analogs and overall sentiment.
The production and current weather forecast also go along with what we’ve sent weeks ago, with the stocks/usage ratio suggesting a pullback in prices
NEWS SUMMARY:
GLOBAL SUGAR DEFICIT COULD END IN 2017/18 SEASON
“18:34 UK, 21st Nov 2016, by Tanya Ashreena and Mike Verdin
The International Sugar Organization, in its first estimate for the global sugar balance sheet next season, which starts in October 2017, said that “assuming normal weather conditions… fairly balanced global production and consumption come into view”.
This would mean “a possible end of the deficit phase in the world sugar cycle”, after two seasons when global output has fallen short of demand.
“Any easing of price in reaction to expectations of a possible return of the world supply and demand to a more balanced scenario in 2017-18 may be muted,” the ISO said.
The ISO flagged a “critically low level of stocks” which the world would be left with as of the start of 2017-18, after the two deficit seasons which have shrunk stocks by more than 13m tonnes.”
BRAZIL PRODUCTION EXCEEDING EXPECTATIONS
While ethanol prices have been relatively stagnant, the high prices of sugar have attracted refiners to produce sugar rather than ethanol. This is leading to greater production of sugar in Brazil compared to earlier expectations.
“The production mix for the season through Oct. 16 was 46.5% sugar to 53.5% ethanol. A year earlier, the mix was 41.85% sugar and 58.15% ethanol.”
Write to Jeffrey T. Lewis at jeffrey.lewis@wsj.com 10-31-16 0823ET
Copyright (c) 2016 Dow Jones & Company, Inc.
INDIA CONSUMPTION UP AND 7% DECLINE FROM LAST YEAR, BUT LOCAL SUPPLY EXPECTED TO MEET DEMAND.
0810 GMT [Dow Jones] India’s sugar output will likely decline 7% in the new crop season, but availability of the sweetener will remain adequate to meet local demand. The government estimates production to be between 23 million tons and 24 million tons, while the Indian Sugar Mills Association pegs it at around 23.4 million tons for the crop year that runs from October this year.
OTHER TECHNICAL FACTORS
11:40 UK, 21st Nov 2016, by Mike Verdin
“We would make the point that since we talk to most of the discretionary funds, we are pretty sure that none of them is wedded to the bullish story,” the broker said, flagging thoughts that system funds “will be getting out now”. Sell signals to these investors include, from a chart perspective, “the fact that some of the long-term trend lines have been broken”, besides the reversal in fund strategy to selling rather than buying.
“Almost all funds are effectively trend-seekers, so will presumably continue to follow the new trend, and in doing so, confirm it.” A potential market “mistake” was the rally in futures to 23 cents a pound, meaning prices were now where they “should be” at 20 cents a pound. “But if nothing happens to ‘stop the rot’,” in terms of fund selling, “we think that it [the price] could head lower, and maybe much lower.”
