World Outlook: Traded Raw Sugar Forecast to Fall

The world indicator price for traded raw sugar is forecast to fall 25 percent in 2006-07 to average 11.9 U.S. cents a kilogram. * The Current price for traded raw sugar is at around 11 cents to 12 cents per POUND ( not kilogram). Besides this, raw sugar price has more or less stabilised. A 25 percent further reduction in the current price will bring down the cost to barely 9 cents/ lb In making the prediction, the Australian Bureau of Agricultural and Resource Economics (ABARE), says the global supply response to high prices in the middle of 2005-06 means that sugar supply has grown faster than sugar demand and this will place downward pressure on prices in 2006-07. "Exports from Brazil and India, two of the world's major sugar producing countries, are forecast to increase more than was expected previously as good seasonal conditions have led to higher production in those countries," the ABARE report says. "In contrast, the European Union is forecast to reduce exports significantly in 2006-07 in order to meet its obligations to the World Trade Organization." Record production is expected in China and the Russian Federation, and this will reduce the demand for imports from two of the world's largest sugar markets. Production in Brazil is forecast to increase by 8 percent to about 33 million tons in 2006-07, reflecting favorable seasonal conditions and an increase in the area planted to cane. Brazil's position as the world's largest exporter of sugar means that any change in the amount of sugar produced has a direct influence on world prices. Further, ethanol production is an important part of the Brazilian sugar industry, with approximately half of the cane grown in Brazil used to produce ethanol for use as a transport fuel. In 2006-07, production of cane is forecast to increase by enough to lead to an increase in production of both sugar and ethanol and, in turn, this will place downward pressure on world sugar prices. Record production is forecast for India, with output forecast to increase by 17 percent to around 24.5 million tons in 2006-07. This increase reflects an end to drought conditions and an increase in the area planted to cane. Although production is expected to be about 3.5 million tons higher than consumption, only 1.5 million tons are forecast to be exported. The Indian government has imposed a ban on exports that will not be reviewed until the harvest is nearing completion. Exports have been banned to prevent domestic prices from rising and because stocks are at their lowest for some years. Record production is also forecast for Thailand in 2006-07. A return to favorable seasonal conditions and an increase in the area planted to cane is expected to lead to an increase in sugar production of 28 pecent to 6.5 million tons. As a result, exports are forecast to rise by 50 percent to about four million tons. ABARE says production in China is forecast to rise by 17 percent to more than 11 million tons in 2006-07 as a result of favorable weather conditions during the growing season and higher domestic prices, which have led to an increase in the area planted to cane and beet. Higher production will reduce the demand for imports, which are forecast to fall by about half a million tons in 2006-07 to one million tons. Higher domestic prices in the Russian Federation have led to an increase in the area planted to sugarbeet. In addition, sugarbeet was sown in areas where there was winterkill in the wheat crop. As a result, production in 2006-07 is forecast to increase 19 percent to 3.3 million tons. With increased domestic supplies, imports of sugar by the Russian Federation are forecast to fall by 300,000 tons to about 3.25 million tons. Exports from the European Union are forecast to fall 81 percent in 2006-07, to 1.4 million tons. The drop follows the World Trade Organization finding that the EU was in breach of its obligations under the Uruguay Round Agreement on Agriculture. The EU now must limit its subsidized exports to 1.273 million tons. However, it appears that the European Union is likely to export 127,000 tons more than was agreed in 2006-07 to avoid an excessive buildup of stocks. *There was an error in the article and it has been changed, thank-you to Amitabh Bapat for bringing this to our attention.