Confidence among Australia’s sugar producers has soared to a near six-year high on the back of the strength in sugar prices, according to a recent survey by agribusiness banking specialist Rabobank.
And global fundamentals remain supportive of prices being maintained in the 2016/17 season, with Rabobank’s recently-released Sugar Quarterly report forecasting another sizeable global sugar deficit, which is set to further run-down stocks.
With the 2015/16 season marking the first global sugar deficit in five years, at a projected 7.9 million tonnes, the report forecasts a similar deficit in the 2016/17 season of 7.2 million tonnes.
Report co-author Rabobank commodity analyst Georgia Twomey said the likelihood of this substantial global deficit in 2016/17 was already priced into the market, with prices up around 50 per cent on last year’s average.
“Following the dramatic run-up in prices earlier in the year, New York #11 futures have stabilised over the past three months to trade in a fairly narrow range of USc19/lb to USc21/lb,” Ms Twomey said.
“Of course, sooner or later, there is likely to be a break-out from the current price range, however there is more upside than downside to the price outlook.”
Ms Twomey said prices would be largely dictated by the size of the Indian, Thai and Centre/South Brazilian crop and, while some certainty around the size of their crop was still months away, any downward revision to expectations would drive prices higher.
The size of the Australian crop was also uncertain, Ms Twomey said, with wet weather creating challenging harvesting conditions.
“As at the start of September, harvest is around 23 per cent behind where we were this time last year,” she said, “with the crush only 40 per cent complete and mills extending their finish dates into December and possibly, January.”
Ms Twomey said while wet weather was the major constraint to the Australian sugar harvest, if it was all harvested, it was expected to reach in the vicinity of 36 million tonnes of cane – the largest harvest since 2005.
“While growers are citing concerns around the impact of the wet on their CCS levels, this is largely outweighed by the price improvement, with market fundamentals remaining very supportive for the 2016/17 season,” she said.
The largest downside risk to the outlook is the large net-long position held by the fund speculators, Ms Twomey said.
“While their current trade position is making the sugar market vulnerable to macro-shocks, we believe any such downturn would be relatively short-lived given the positive outlook for prices.”
Rabobank Australia & New Zealand Group is a part of the international Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has more than 115 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 40 countries, servicing the needs of approximately 8.6 million clients worldwide through a network of more than 1000 offices and branches. Rabobank Australia & New Zealand Group is one of Australasia’s leading rural lenders and a significant provider of business and corporate banking and financial services to the region’s food and agribusiness sector. The bank has 94 branches throughout Australia and New Zealand.
Head of Media Relations
Rabobank Australia & New Zealand
Phone: 02 8115 2744 or 0439 603 525
Media Relations Manager
Rabobank Australia & New Zealand
Phone: 02 4855 1111 or 0418 216 103