Sugaronline Editorial - From fantasy to reality: a bullish bear By Meghan Sapp

Published: 05/14/2018, 2:52:00 PM

It's a good news/bad news sort of thing.

Typically, a market is bearish because of surplus or bullish because of deficit, but even then some may have more bullish views or bearish views that run counter to what everyone else seems to believe. Yet, that’s in a typical market, and what became clear during New York Sugar Week last week is that this is far from a typical market.

The term “bullish bear” was thrown around more than once in New York, and even though it may sound counterintuitive, there may not be a better description for the current season. For the moment, at least.

The bearish part is obvious. As has often been the case, India is the culprit. The sheer fact they have no idea how much sugar they’re going to produce is one that has everyone concerned—not to mention dumbfounded. As described during one presentation last week, India “found” the Mexican crop in its fields. That is to say, an extra six million tonnes it wasn’t expecting (while Thailand “found” Australia and Peru in theirs). If India exports, they’ll have to subsidise and hurt everyone else, and if they don’t export, then they’ll hurt themselves even more. It’s a simple case of damned if you do, damned if you don’t.

Without exports, if India produced 29.5 million metric tonnes, then it would have a gigantic 10.5 million tonnes of opening stocks come October 1—enough for five months of consumption. But already the country is close to producing 32 million tonnes. That figure could go higher, although perhaps not too much. Next year, monsoon depending, will go at least as high as this year or it could go a lot higher thanks to farmers in Maharashtra already betting the election this year will guarantee high cane prices next year.

So where’s the bull hiding in the cane field, you ask? In the price necessary to release these exports onto the world market, of course. Without subsidies, or much subsidy, for India to export any kind of real volume, the market will have to come back towards 15 cents. If not, then its surplus is for all intents and purposes locked within its borders. And it’s not just India. Thailand said over the weekend it would hold back 500,000 tonnes of exports from the market because prices are too low. Much more of that kind of coordination and the price floor could start to creep back up.

India can no longer continue to dally on the implementation of cane pricing policy that ties it with the price of sugar rather than with the political whims at state and national level. Cane prices in Brazil run around US$22/tonne while Thailand is near US$28, so India producing a surplus that must be exported but with cane prices of closer to US$50/tonne, they have no business exporting at all. And if they choose to subsidise, Thailand, Australia and Brazil are ready to take their complaint to the World Trade Organisation, which could find their trade ambitions muzzled much like the European Union was until October last year.

As in Geneva a few weeks ago, there were basically two camps in New York: the above 9 cents and the below 9 cents. But with millions of tonnes of sugar unviable for export below 15 cents, how could the market really fall so low?

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