Outlook for sugar

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Outlook for sugar
Terry Sheales Chief Commodity Analyst
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Todays presentation

• Market trends
• Consumption drivers
• Prices
• Longer term influences
• Governments and sugar
• Developments in key countries

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World sugar
Production
Consumption
Stocks
Mt
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Sugar consumption

• Affected by
• Incomes of consumers developed vs developing
  countries and population
• Own price high prices in early 2006 a negative
• Price and availability of substitutes HFCS,
  starch artificial sweeteners

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Raw sugar price
New York No. 11 Spot
USc/lb
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World sugar
Price
Stocks Change
1991-92
1994-95
2006-07
1997-98
2000-01
2003-04
Mt
USc/lb
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World sugar
Price
Stocks Change
2003-04
2006-07
2008-09
1991-92
1994-95
1997-98
2000-01
Mt
USc/lb
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Longer term influences

• Income and population growth
• Asia, north Africa Middle East especially
• Growth and development of the ethanol market
• sugar vs ethanol returns will affect Brazil
  exports
• Policy reforms a long term hope
• EU changes to benefit sugar trade
• WTO best hope bilateral agreements must be
  trade enhancing not price distorting

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Sugar markets distorted by governments

• market access is constrained
• export subsidies remain
• price supports shield growers from market
  realities
• high cost inefficient producers are surviving
• significant spill-over effects to world market

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Brazil

• Key global price driver dominant exporter
• Production up 5 to 35Mt in 2007-08 despite lower
  prices
• Relative returns from sugar vs ethanol affected
  by oil prices
• Potential for more cane area despite lower prices
• US tariffs subsidies to inhibit ethanol trade

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Sugar in the European Union
Production
Exports
Mt
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European Union

• WTO panel decision on subsidised exports means
  shipments to fall to 1.4 Mt in 2006-07
• Production quotas price cuts to reduce
  potential for stocks buildup
• Minimum beet price and white sugar reference
  prices to being cut over 4 years
• Potential to be a large importer by 2011-12

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Russia

• Largest importer but rising production and flat
  demand mean trade declining
• Tariffs assisting increased beet plantings --
  potential for additional seasonal duties to
  cut imports further
• Imports to fall by half to 1.5Mt by 2011-12

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India

• Habit of government intervention has inhibited
  industry growth
• Higher returns from sugar relative to other crops
  provided an incentive to lift production in
  2007-08
• But export restrictions from July to January
  prevented the industry from benefiting fully from
  good world prices

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Australia

• Production up 10 to 5.1Mt in 2007-08
• Exports of 4.0 Mt in 2007-08 up 9
• Higher cane yields CCS values main avenue to
  future production rises
• Sugar smut likely to be contained through
  resistant varieties

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To sum up

• World sugar prices sensitive to stock changes
• Increased output and exports from Brazil to
  offset lower EU production and exports
• Limited potential for Australian growth
• Government supports and import protection will
• continue to distort the market
• harm low cost efficient exporters
• prop up inefficient producers
• cost consumers dearly

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