Judith Wilson

September 2016

In September, the No 11 price broke out of the 19.50 to 20.50 USc/lb trading range, penetrating above the 23.00 USc/lb level before slipping back at the end of the month.  The October 16 futures contract, which expired at the end of September, closed at 22.53 USc/lb, having gained 247 points in the course of the month. Prices have risen on average 7% from a month ago, and are almost double those of the same time last year. The front month contract monthly averages for the 2016 year to date indicate a significant  recovery from the low pricing levels in 2015 (10.39 USc/lb in August 2015).

2016 Monthly Average Front Month

Month Pricing No 11 in USc/lb
Jan 14.3
Feb 13.3
Mar 15.4
Apr 15.0
May 16.7
Jun 19.6
Jul 19.7
Aug 20.0
Sep 21.4

Some analysts speculate that the No. 11 price rally in 2016 is overdone, and a correction may be just around the corner. According to Platts Senior Sugar Analyst David Elward, the upward trajectory of pricing has been largely supported by an injection of capital from hedge funds and individuals who spotted an investment opportunity when pricing reached the historic low of approximately 10.00 USc/lb, turning the speculators net short position of 80 000 lots into a net long position of just under 300 000 lots. The expected sell-off once sugar pricing increased over the 20.00 USc/lb mark didn’t occur, perhaps to some extent due to the relatively poor performance of alternative investment opportunities at the time. Speculators continued to expand their net long position to a new high of 340 512 lots. Fundamental factors to support the rally in price may be more uncertain.


News of lower agricultural yields and a lower sucrose body (ATR) in Centre South Brazil intensified in September, bringing into question availability for the remainder of the season, and creating a necessity for a pricing premium to temper short term demand. But given the 600 point differential in favour of sugar over ethanol, it is likely that even a reduction in total crop will not impact an estimated sugar production for the season of 35 million tons, from 31 million tons in the prior year. Brazilian exports are expected to be over 4 million tons higher than the previous year, with the majority of the increase in raw rather than white exports.


India’s 2016/2017 Oct/Sep production estimate has been revised upward slightly from last month, to 23.4 million tons (25.1m million tons in the prior season). Local sugar prices are the highest they have been for 6 years, which may result in some of the 18 month cane varieties destined for crushing in 2017/2018 being brought into the 2016/2017 current season to maximize production. In spite of the upward adjustment in production forecast, a deficit to consumption remains, with season end stock anticipated to be 21% down year on year. Imports to support local demand in the region of 1.2 million tons could still be expected.


In Thailand, 2016/2017 production (Oct to Sep) is estimated at 9.28 million tons, from 9.62 million tons in 2015/2016. With local consumption stagnant, the impact on the world market is largely a reduction in raws exports. 


In China, the first tranche of much anticipated release of government stock was announced. The first tranche (350 000 tons, less than anticipated) is expected to be released in October, with potentially a further 150 000 tons release in Guangxi province to be confirmed. The releases aim to manage rising sugar pricing to local consumers. Local consumption is pegged at 15.5 million tons, with local production increased versus the prior year and a release of government stocks, legitimate imports are likely to decrease by more than 20%. The Guangxi Sugar Association has requested an import duty to protect local producers, which if implemented could further impact import attractiveness. Smuggled imports, accounting for approximately 2.1 million tons, are anticipated to be similar to the prior season. 


The EU market remains tight, with 2016/2017 ending stocks anticipated to be a record low of less than 300 000 tons (in a market consuming 18.2 million tons that held stocks of 1.25 million tons at the end of 2015/2016 season). Increased acreage in beet production and higher yields in Poland and Germany are driving a 10% increase in production estimates for 2016/2017 versus the prior year.

Global Stocks

On a days-of-use basis, global sugar stocks fell from 168 days in 2014/2015 to 128 days in 2015/2016, according to FO Licht’s recent reporting. Forecasts indicate that the 2016/2017 level will fall further to 123 days in 2016/2017. According to the report, the last time the ratio fell this low, prices surged above 35.00 USc/lb.

In macro news, the US Federal Reserve elected not to increase the interest rate this month, but a December 2016 increase remains a possibility. Commodities are generally in favour with investors, largely due to concerns around the impact of the low rate environment and possible disruption of the bond market, and short term tactical buying of particularly cotton, coffee and sugar. It remains to be seen whether commodities will continue to find favour with investors, and this trend is vulnerable to correction. Following the impeachment of Brazilian President Dilma Rousseff last month, and the swearing in of new President Michel Temer, this market appears to have “bottomed out”, with reforms needed to maintain positive momentum. A stronger Brazilian Real could have a significant impact on sugar pricing going forward.

Analysts in support of a sustained No.11 pricing rally cite further reductions in Brazilian cane availability and quality in the tail of the season as a possibility, although the relatively high sugar to ethanol mix may limit the impact on world market sugar. On a national crop year basis, production deficits for 2015/2016, 2016/2017 and 2017/2018 are still contemplated, but it could be argued that this has already been factored in by the market. Bearish factors include further potential releases of Chinese government stocks, and the imposition of a Chinese import duty, leaving sugar destined for imports to that country without a home. Given the scale of the speculator position in the sugar market, any cause for liquidation, such as a hike in interest rates, could result in a severe price shock.