Sugar market analysts Czarnikow have raised estimates of the global sugar surplus to 6.1 million tonnes, with higher output in the EU, Russia and north east Brazil. Since 2008/09, high prices have encouraged an expansion of global production of 26 million tonnes (raw value). Nevertheless, in the past three seasons there has been a deficit of nearly 25 million tonnes. Czarnikow warned that sugar markets ‘remained vulnerable to any unforeseen production shocks and export availability concerns’. Significantly, Czarnikow noted that the production increase had largely occurred in ‘protected deficit markets that have been incentivised to expand’.

In January 2012, Europe’s second largest sugar company, Suedzucker, reported an abundant beet crop, with a 16.8% increase in sucrose yields. This, along with raw sugar refining operations, is projected to boost sugar production by 26%, from 4.2 to 5.3 million tonnes. This comes on the back of a staggering 64% increase in the operating profits of Suedzucker’s sugar operations.

A similar situation exists at ABF, whose sugar division has recorded an ‘exceptional performance’, with a 21% increase in sales in the 3 months to September 2011. In January 2012, Tereos also unveiled ‘record core earnings’ following cost reductions in its beet operations and the building of corporate ties in cane-producing countries. Overall the performance of these three companies, which are ‘best positioned’ to benefit from further deregulation of the EU sugar sector, stands in distinct contrast to the financial difficulties faced by European cane sugar refiners. Tereos, however, whose roots are in beet farming, called on the EC to ‘maintain its highly regulated sugar regime’.

According to Czarnikow, the growth beet production ‘helps explain the relatively resilient sugar prices’, since cane raw sugar ‘is the staple in trade’. As a consequence, markets have ‘still yet to reflect the expected surplus’. An alternative perspective suggests that it is feared the current surplus ‘will shrink in the next harvest’. As Czarnikow points out, the operation of the EU sugar regime, with its carryover provisions, will transfer some 1 million tonnes to next year’s quota. This will see a reduction in spring plantings, unless large volumes of out-of–quota sugar are reclassified for domestic use, or disposed of through the issuing of a larger volume of export licences.

A lack of investment in replanting and reseeding suggests that the cane sector will not achieve ‘in the next three years the growth it has managed since 2008’.

A review of ‘21 analysts and trader estimates compiled by Bloomberg’ suggests that ‘prices may rise as much as 10% to 27 cents a pound by Dec. 31.’

Overall the development of Indian production and demand and China’s stock holding policies are seen as important unknown factors hanging over global sugar prices developments. In the medium to long term, the expected rise in per capita sugar consumption in China, linked to rising income levels, is expected to result in a major boost to global sugar demand.

According to reporting on commodities website Agrimoney.com, USDA analysis suggests that the evolution of world market prices in the coming years could have an important bearing on the future of EU production quotas. It is argued that since ‘low prices are expected in 2012-13 and 2013-14’, there is a case for retaining quotas during this period. However, rising sugar prices after 2014 would increase market pressure to ‘revise the quota system’, since this would otherwise risk ‘a repeat of the shortages seen last year’, with raw sugar imports being hard to attract into the EU.