DEMAND & SUPPLY OF SUGARCANE

Demand & Supply of Sugarcane

Demand & Supply of Sugarcane

Part I

World sugar prices have been booming since end of June 2009, largely in response to less than average rainfall of monsoon of 2009 in India, the major sugar producer and consumer countries. On September 14, 2009, world sugar price indicator (Intercontinental Exchange, no. 11 spot, fob Caribbean) was US22.5 cents per pound, down from US25.02 cents per pound reached 31 August 2009, which was rated highest price for almost 30 years.

Looking ahead, world sugar price indicator is forecast to US16.5 cents per pound on average in 2009-10 (October-September), compared with an average of US15.5 cents per pound in 2008 -09. This forecast reflects higher world sugar production in 2009-10, especially in Brazil, and anticipation that the recovery in sugar production in India in 2010-11, which is expected to weigh on global prices for sugar 2009-10 season progresses.

THE concern with any sharp increase in price of the product is or is not being driven by speculation rather than supply and demand factors. Experience has shown that inflated price levels of speculation are not sustainable in long term. Given recent rapid increase in world sugar prices, there is the possibility of speculative buying has been the significant contributory factor.

Part II

World sugar production will recover to 166 million tonnes in 2009-10, which is 11 million tonnes in 2008-09. Production increase is forecast for most major producing countries in 2009-10, especially in Brazil, offsetting the poor harvest forecast in India.

Sugar production in Brazil depends on extent to which production of cane is diverted to ethanol production. Brazilian sugar cane production is expected to increase by 8 percent in 2009-10. Domestic prices and export of ethanol in Brazil is expected to increase in 2009-10, in line with projected increase in world oil prices. However, forecast price suggest that proportion of sugar cane used in sugar production will increase to 44 percent in 2009-10, compared with 39 percent in 2008-09. It will break trend of increased use of ethanol from sugarcane for 2002-03.

Consequently, Brazilian sugar production in 2009-10 is forecast to increase by 12.5 percent to the record 45 million tonnes. This takes into account long-term official forecast for spring in Brazil of above average rainfall, which could lead to lack of sugar content in sugarcane.

21 percent below normal monsoon rainfall in India in 2009, along with the general disenchantment with sugar growing in India due to factors such as slow payments for sugar, average sugar production India is likely to increase slightly compared to poor harvest of 2008-09. Sugar production in India in 2009-10 is projected to increase to 18 million tonnes, 1.2 million tonnes in 2008-09 and 12.7 million tonnes below record production of 2006-07. Monsoon so far has been particularly poor in key sugar-producing states of Uttar Pradesh and Maharashtra.

Reform of EU sugar arrangements under common agricultural policy and is largely completed. Sugar production in EU is forecast the slight increase in 2009-10, following large decrease in each of three previous ...