In our December report, National Farmers Union (UK) Sugar commercial and market insight manager Arthur Marshall looks at the challenges and opportunities in sugar industries in Europe, Brazil and India, and what it means for us.
Meanwhile, Paul Harper discusses how the world market supply deficit in the near term is forecast to shift to a surplus in 2025.
Highlights
Every November, NFU Sugar joins sugar growers from around the world in London for the annual WABCG (World Association of Beet and Cane Growers) seminar, immediately before the ISO’s (International Sugar Organisation) annual seminar.
We’ve learned a lot about the challenges, opportunities and prospects faced by growers and industries across the world.
The general outlook is for a better supplied world market in 2025/26, but with more pessimism in the air closer to home in Europe. We’ve devoted this issue to looking at some of the most interesting things we’ve heard, and analysing what it means for us.
World Market Looking Better Supplied
On the world market, the supply outlook is improving, both for 24/25 and 25/26.
The ISO now has a neutral view on price in the short-term, having trimmed its view of the world market deficit from -3.5Mt to -2.5Mt in 24/25.
Though this would still be the second highest deficit in eight years, it is accounted for in their view in the relatively high price the world market continues to maintain.
Meanwhile, Globaldata has shifted to a virtually balanced view of the world market in 24/25 (-0.6Mt), and issued its first forecast for 25/26 at a 3Mt surplus – this would be the highest since 18/19.
In particular, the ISO highlighted the falling growth rate of global consumption. The trend line of annual consumption growth is now below +1 percent per year, more or less the rate of global population growth, compared to a rate of +2 percent per year 20 years ago – in other words, average global consumption per capita is almost no longer rising.
The location of demand is also gradually shifting – a declining proportion is in Europe and North America, whereas consumption is rising particularly in South Asia.
What Does It Mean For Us?
Falling demand growth worldwide, driven particularly by sugar demand falling outright in Europe, is a long-term factor behind the outlook for a better supplied world market in 25/26.
While the outlook is still heavily dependent on weather in the upcoming year, the changes in demand are being felt particularly acutely by the sugar industry in Europe in the medium-term. If the expected surplus in the world market materialises in 25/26, it would weigh on world market prices.
Mood Of Pessimism In Europe
Among all the speakers, the European growers and industry representatives appeared to us the most pessimistic for the future, reflecting medium- to long-term grower sentiment in response to various challenges.
Most speakers from Europe expected beet area reductions in 2025 given the lower sugar and beet prices, as we discussed in last month’s Beet Brief. However, the longer-term outlook contained a number of other challenges.
CGB, the French grower’s association, cited average cost of beet production at €35/t now, up €10/t (+40 percent) in ten years, while multiple speakers cited a reversal of yield growth with a flat or falling yield trend now.
In southern Germany, the rapid spread of diseases such as SBR (Syndrome des Basse Richesses) has meant what could have been an excellent yielding year has ended up being an average yielding year.
With the potential to cause up to 50 percent yield losses, and lack of control options available to growers due in part to the narrow toolbox of PPPs available, the industry is very concerned about how much this could affect yields in any year when the weather is not otherwise very good.
Südzucker has introduced a contract safety net very similar to Yield Protection in the UK to try to maintain grower confidence.
Many speakers from Europe mentioned increasing regulations combined with growing expectations from the supply chain on sustainability, all of which are adding further to costs of production.
While many outlined products where customers can pay a premium for these, Cosun Beet Company pointed out that if supply chains make it an expectation to produce sugar in ways that cost more, market forces will mean those customers will still have to pay that cost eventually.
What Does It Mean For Us?
Much of the concerns cited reflect concerns among UK growers. Compared to cane, which is a multi-annual crop, and U.S. beet, which is a heavily managed market, European beet is one of the few sugar industries to both receive and react to price signals with changes in crop area.
Despite the recent spike in European beet area, we were left with the impression that Europe is likely to generally remain in a sugar deficit with prices therefore at a premium to the world market, except in cases of exceptionally high prices such as last year.
Ethanol The Saviour In India
In the past few years, the Indian government has heavily promoted ethanol production to increase outlets for cane beyond exporting sugar to the world market while also meeting emission reduction goals.
Five years ago, ethanol blending was barely 1.5 percent in India, but hit over 15 percent in May 2024, with a government mandate to reach E20 by 25/26.
The government is also looking to start blending biofuels into aviation fuel, aiming for 1 percent blending of SAF (Sustainable Aviation Fuel) in 2027, rising to 5 percent by 2030. We had the strong impression the government sees the ethanol programme as a zero cost way to support the cane industry, which otherwise would often have a large surplus to be exported potentially at considerable cost to the government (given the system of export support).
What Does It Mean For Us?
If India returns to being a major sugar exporter, as they have been in recent years, it would have a big impact on the world market.
The trend in cane production remains upwards, as yields improve and the industry benefits from extremely supportive government policies such as high minimum prices, but in recent years this has been matched by a rapidly expanding ethanol programme avoiding the need for exports on the previous scale.
If India continues to expand ethanol outlets for cane as a means of supporting industry and grower incomes, then it could continue to use up the production growth. However, if ethanol expansion slows and fails to keep pace with production growth, the industry and/or government may once again look towards large scale sugar exports to shift the surplus, which would weigh on the world market.
Trouble In Paradise In Brazil
Industry and analysts are expecting an increase in sugar production in 25/26 despite potentially a smaller cane crop.
With sugar returns still high relative to ethanol values in the Brazilian market, and investments coming onstream allowing cane mills to send a greater proportion of their output into sugar production over ethanol, a record sugar to ethanol mix from cane of over 50 percent is expected.
While cane mills can obtain better returns from sugar, more corn ethanol is being produced to satisfy that market. As a result, analysts expect the world sugar market to be further dependent on Brazil in 25/26, already the source of the majority of the sugar exported onto the world market.
Nonetheless, not all has been rosy in the Brazilian sector. Tension has been brewing between growers and mills as ORPLANA (representing growers) and Unica (representing mills) have been unable to agree a new cane contract under the regulations set down in 1999.
The agreed pricing model is meant to operate on a cost-ratio basis, but Orplana showed how growers have lost money every year since 2022 despite mills returning profits to shareholders. Without an agreement signed, we were told there is currently no agreed model for calculating cane prices in 25/26.
What Does It Mean For Us?
Brazil is by far the largest supplier to the world market, and the current forecasts will only increase that.
It is a reminder that in commodity markets the effects of high and low price signals are often lagged and appear in the years afterwards – in this case for example the investments triggered by exceptionally high prices in 2023 are expected to allow higher sugar production in 2025.
The disagreements between growers and mills remind us that sugar industries around the world growers are organised in a similar way to ourselves, and that the recent commercial challenges we’ve faced are not unique.
It is not clear how grower confidence could be affected by the commercial challenges in the sector, but Orplana noted the impact of rising costs including cane renewal.
A Trader’s View
NFU Sugar Board appointee and sugar trader Paul Harper shares his thoughts on the current market situation.
The market has continued to trade within the recent range with the more speculative element causing most of the moves as they trade in and out of their positions. Fundamentally, little has changed although some analysts have reduced their surplus for 2025/26 slightly.
There still remains a deficit, certainly in the first quarter of next year and this is reflected in the high premium of the March 25 No.11 raw sugar futures-contract over contracts further forward.
Depending on how quickly the Brazilian crop gets under way will determine what happens to the market from the second quarter of 2025 onwards.
The importance of the Brazilian crop to the world market cannot be underestimated as it accounts for more than 75 percent of the raw sugar market traded globally.
Elsewhere, Indian consumption is expected to rise and the production of ethanol is likely to increase probably keeping them away from the export market, particularly while world market prices are in the current range.
Some analysts have suggested that yields may be down in Thailand so will be watching the beginning of the crop closely as we move into 2025.
As mentioned above, fundamentals have not changed much and it is still expected by many analysts that the market will be oversupplied in the second half of 2025, but any issues with the Brazilian crop could change this.
However, for the moment, forward prices on both the No.11 raw sugar and No.5 white sugar futures markets reflect current projections.
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