Global Sugar Outlook: Australia Focus
BMI View : While Australia's production surplus will rise y-o-y, we believe that global sugar prices will head higher in H214 and 2015 as the global market tightens. The strong possibility of an El Niño event poses significant downside risks to our Australian sugar production forecast of 4.4mn tonnes in 2014/15.
The 2013/14 sugarcane harvest and crushing season is now over in Australia. We maintain our production estimate for the season at 4.3mn tonnes, which represents a 1.2% year-on-year (y-o-y) decline. Floods in early 2013 and the outbreak of a disease in the Bundaberg and Isis regions reduced plantings and yields.
We continue to forecast production to grow slightly in the 2014/15 season to 4.4mn tonnes as area planted has marginally increased and yields are forecast to improve. Severe drought in Queensland - where 90% of Australian sugar is grown - in the beginning of the year led to concerns over plantings, but the primary coastal growing regions were less affected and we believe plantings have been robust. The 2014/15 planting season has now finished, and local USDA officials estimate sugarcane area under cultivation at about 390,000 ha.
|Striking Effect On Rainfall|
|El Niño Events - Mean Rainfall Deciles|
While difficult to incorporate into our forecasts at present, the possibility of an El Niño event poses significant downside risks to sugar production in 2014/15. An El Niño event typically leads to lower average rainfall in the country's east and south, which would hit sugar growing areas and negatively impact yields. The Australian Bureau of Meteorology believes there is a 70% probability of an El Niño event occurring, and that it could be felt as early as August.
We believe that Australian sugar exports will grow in 2014/15 and beyond. The Australian Bureau of Agricultural and Resource Economics (ABARES) forecasts sugar exports to grow by 5% y-o-y to 3.1mn tonnes and 4% y-o-y to 3.2mn tonnes in 2014/15 and 2015/16 respectively. This growth will be primarily due to South Korea, which is Australia's largest sugar export market, eliminating its 3% tariff on Australian sugar in April 2014.
|Export Recovery Imminent|
|Australia - Sugar Exports (LHS) & Growth|
Despite our belief that Australia's production surplus will rise in 2014/15, we believe that sugar prices will head higher in H214 as the global market will tighten. Prices have recently bounced off of resistance-turned-support at about USc17.00/lb, and we hold the view that prices will test and break above the USc20.00/lb level over the course of H214.
|Front Month ICE Sugar, USc/lb|
We believe that sugar output will decline y-o-y in four out of the five largest global producers in 2014/15. Out of Brazil, India, China, Thailand and the US, only India will record modest growth of 2.0% in 2014/15. Indeed, we have revised down our estimate for Brazil's sugar production in 2014/15 to 38.0mn tonnes (down 2.0% y-o-y) from our previous forecast of 39.0mn tonnes. Our 1.0mn tonne downward revision to Brazil's production means we now forecast the global surplus will shrink to 4.3mn tonnes in 2014/15, compared with 8.5mn tonnes in 2013/14. As a result, we see prices averaging higher in the medium term, at USc17.00/lb in 2014 and USc18.50/lb in 2015.
|BMI Australia Sugar Production*||4,939||4,634||4,472||3,610||3,683||4,300||4,250||4,380|
|ABARES Australia Estimates*||4,939||4,634||4,472||3,610||3,733||4,300||4,250||na|
|% Of Global Production||3.0||3.2||2.9||2.2||2.2||2.4||2.5||2.5|
|% Of Global Exports||7.3||7.5||7.1||5.0||5.0||5.5||5.4||na|
|Australia Ending Stocks (USDA)*||400||487||413||193||64||83||65||na|
|Sugar Area Harvested ('000 ha)||397||390||384||334||366||380||388||na|
|Sugar Yield (tonne/hectare)||12.4||11.9||11.6||10.8||10.1||11.3||11.0||na|
|BMI Global Sugar Production**||166.8||143.8||153.7||161.4||171.9||176.1||176.2||176.0|
|USDA Global Sugar Production**||163.5||143.9||153.4||161.9||171.9||176.0||174.8||na|
|* ('000 tonnes) **(mn tonnes) Source: USDA, BMI, FAPRI (FY04 = 2003/2004)|
|Australia Sugar Calendar||P||P||P||P||H||H||H||H||H||H|
|Note: P = planting, H = harvest. Sources: BMI, ABARES|