Prospects for global sugar prices in 2013
24 February 2013
In December 2012, the website Agrimoney.com posted a review of analysts’ projections for global sugar prices in 2013. The analysis notes that in 2012, prices were on course for an 18% decline over the course of 2012. At the end of 2012, sugar prices were at the lower range limit of 19 to 22 US cents per pound.
While price projections for 2013 vary, all the analysts except Commerzbank projected a decline in global sugar prices, in the face of a second consecutive global sugar surplus (declines of between –2.6% and –8.8%). Barclays projected increased supplies and weaker demand in 2013, with a steady decline in prices in the first three-quarters of 2013. Rabobank’s projections are slightly more optimistic, while Société Générale’s projections are some 15% higher than Barclay’s price projections.
The most optimistic price projections are those of Commerzbank (+10% over the year), as Commerzbank assumes that ‘speculative financial investors have already reacted to the outlook of plentiful supply’. They also reflect an anticipated increased use of sugar for ethanol production in Brazil.
The sugar/ethanol mix is seen as the big question in 2013–14. Lower global sugar prices reduce the incentive of Brazilian millers to maximise sugar production, while ‘robust export flows of ethanol to the US’ and an expected increase in Brazilian ethanol blending requirements are likely to promote increased use of Brazilian sugar cane in ethanol production. This will be helped by recent price trends. On 10 December 2012, New York Sugar Futures ‘slipped below the anhydrous ethanol equivalent price’.
Sugar: Analysts’ price projections for 2013 (US cents/lb)
| Barclays | Commerzbank | Rabobank | Société Générale | |
| Q1 | 18.6 | 20 | 19 | 20.4 |
| Q2 | 18.0 | 21 | 19 | 20.0 |
| Q3 | 17.5 | 21 | 18.5 | 19.1 |
| Q4 | 17.7 | 22 | 18.5 | 18.6 |
| Average for 2013 | 18.0 | 21 | 18.5 | 20.8* |
* Questions arise as to how this average was determined given the quarterly price projections, but it has been included to maintain consistency with the text in the source cited.
Meanwhile, on 17 January 2013 proceedings began on Tate & Lyle Sugars’ legal challenges to the EC’s management of the EU sugar market, specifically the regulation of imports. Tate & Lyle Sugars maintains that EC policy implementation decisions have given rise to sugar prices ‘currently around 80% higher than world levels’ and have discriminated against traditional raw cane sugar refiners.
Sugar: monthly European and world market import prices in 2012 (US cents/lb)
| Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | |
| EU | 25.81 | 26.27 | 26.30 | 26.61 | 26.47 | 25.86 | 25.92 | 26.13 | 26.80 | 26.74 | 26.56 | 26.84 |
| WMP | 24.03 | 23.82 | 22.79 | 20.48 | 20.27 | 20.10 | 22.76 | 20.56 | 20.21 | 20.39 | 19.31 | 19.20 |
Sources:
Indexmundi.com:
EU: http://www.indexmundi.com/commodities/?commodity=sugar-european-import-p...
World market price (WMP): http://www.indexmundi.com/commodities/?commodity=sugar&months=12
Editorial comment
At 19 c/lb, sugar prices translate to €312.85 tonne at the dollar/euro exchange rate of 22 January 2013, marginally above the floor price for ACP sugar applied until 1 October 2012. However, throughout 2012, average monthly EU market prices were substantially above this 19c/lb level (averaging between 36 and 41% above), and ranging between 10 and 40% above average monthly world market prices. The average prices, however, mask widely divergent prices under individual contracts: some spot prices are nearly twice as much as the basic prices negotiated under long-term contracts.
While EU member states take decisions on import arrangements at the Management Committee level, Tate & Lyle Sugars maintains that policy implementation ‘is solely the responsibility of the Commission’. This provides the basis for its allegations of mismanagement.
As world market prices fall in 2013, how the EC manages sugar import arrangements will become increasingly important. The future of EU sugar quotas and changing targets under the EU biofuel mandates (see Agritrade article ‘ Growing calls for review of EU biofuels policy’, 18 November 2012) will also have an impact on prices paid for individual ACP sugar consignments.
Equally important, however, will be how specific supply chains function, particularly where close corporate relations exist between the ACP miller and EU importers/refiners (see Agritrade article ‘ ASR to take shares in Belize Sugar Industries’, 9 July 2012 and Agritrade Special Report ‘ Corporate restructuring in the EU sugar sector: Implications for the ACP’, 30 April 2010).
