NORTH BY NORTHWEST
World sugar prices are currently trading at higher levels than those registered at the same time last year.
Furthermore, there is also a stronger backwardation in the futures market (March trading around 400 pts higher
than July in New York N#11 and at 50$ over August London N#5).
The current market structure indicates that, after two years of deficit, the expected return to a surplus is still
elusive for the 10/11 crop year: weather problems worldwide have created a storm of events that have reduced
crop prospects in many major producing countries. As such, even if world sugar production during the 10/11 crop
year were to recover from the poor performances of 09/10 (155 mln tonnes), it will still not outpace consumption
(163 mln tonnes) and stocks will not be replenished, remaining at very low levels.
Looking forward, for the first time since 2000, the amount of cane crushed in CS Brazil should not increase in 11/12
and is likely to remain steady at 560 mln tonnes. Nevertheless, sugar production should increase slightly as it offers
a better return than ethanol, triggering additional investments to optimize the sugar ratio. In India, there are still
uncertainties about the size of the recovery of sugar production in 2010/11 and the country is about to swing from
the biggest importer to a net exporter. However, due to record food inflation, authorities are for the time being
reluctant to release sizeable export licences until the size of the cane crop is better assessed. This year again, many
uncertainties remain towards the impact of India on trade flows.