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CONFIDENCIALMarch, 2017
ISMA Annual Sugar Conference
5th October 2021
From a Disaster Crop in CS Brazil to Muted Crop Recoveries Elsewhere – Sugar prices to stay well bid
CONFIDENCIAL
The 2021 Price Action - Commodities was one of the Best Performing Asset Classes
2
Commodities in general and sugar in particular have benefitted from the global economic recovery post-Covid, elevated weather-risk premium and
constructive fundamental story. In the current inflationary environment, general interest in commodities is set to remain strong in 2021-22.
80
90
100
110
120
130
140
Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21
Sugar Outperformed the BCOM Ags in 2021(Index 4th Jan 2021 = 100)
BCOM-Ags NY No11
80
90
100
110
120
130
140
Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21
BCOM Outperformed US Equities in 2021(Index 4th Jan 2021 = 100)
SPX Index BCOM Index
CONFIDENCIAL
Spec Positioning in Sugar – “Sticky” core net long position to be Maintained
3
The strong sugar fundamental story translated into a core net spec long position of approximately +150K which is comfortably in the money. It would
require a very large price correction to shake-up this “sticky length”.
9
10
11
12
13
14
15
16
17
18
19
20
21
(100)
(50)
-
50
100
150
200
250
300
NY
No
11
Net Fund Position versus NY No11 Prices
Net Fund Position NY No11
CTA
Length
CoreLength
New
Length
CONFIDENCIAL
Distortions in the White Sugar Market
4
The combination of high freight rates and the usual time-lag for domestic prices in some key destinations to react to a rapid structural change in
international prices has resulted in a short-lived and unsual weak white premium. This have now converged to the long-term average.
80
5,080
10,080
15,080
20,080
25,080
30,080
35,080
40,080
45,080
Freight Rates Skyrocketing
Panamax Supramax
20
40
60
80
100
120
140
160
180
Jan
Jan
Jan
Feb
Feb
Mar
Mar
Mar
Ap
r
Ap
r
Ap
r
May
May Jun
Jun
Jun
Jul
Jul
Jul
Au
g
Au
g
Sep
Sep
Sep
Oct
Oct
Oct
No
v
No
v
De
c
De
c
De
c
US$
/MT
Evolution of the Spot White
2021 2020 20Y Average
CONFIDENCIAL
High Global Energy Prices
5
Structural changes seen on the supply side of the energy market trumpet Covid-related demand concerns. High energy prices may have implications for
planting decision in 2022, especially in Europe.
0
20
40
60
80
100
120
140
Brent Crude and European Gas Prices
EU Nat Gas (EUR/MWh) Brent Crude (USD/barrel)
CONFIDENCIAL
Global Weather - Weather Risks Abound as La Niña Looms
6
Since June 2021, the chances of La Niña forming during Nov/Dec/Jan increased from around 50% to almost 80%, according to the latest data from the
US’Climate Prediction Center. The Australian Bureau of Meteorology activated its “La Niña Watch”.
✓ Greater chances of continued below normal rainfall in CS Brazil = > risk of further crop losses in 2022-23
✓ Greater chances of above normal rainfall in Asia = > delayed start of the India harvest campaign, harvest disruptions and
sucrose dilution
4953
50
43
78 79
72
60
OND NDJ DJF JFM
Evolution of Probabilistic La Niña Forecasts by CPC/NOAA (%)
Jun-21 Jul-21 Aug-21 Sep-21
CONFIDENCIAL
EU28 and FSU – Tight SnD Situation to Keep a Lid on Exports Once Again in 2021-22
7
The multi-year low EU28 carry-in will likely keep a lid on exports at sub 1M MT. In the FSU area, suboptimum weather conditions in Russia reduced its
crop potential.
✓ In the medium-term, elevated natgas prices materially increases the EU28 cost of production and will likely keep beet
acreage on a downward trend
-3
-2
-1
0
1
2
3
12
13
14
15
16
17
18
19
20
21
2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
Surp
lus/
Def
icit
(M
MT)
Pro
du
ctio
n/C
on
sum
pti
on
(M
MT)
EU28 Tight SnD Situation to Once Again Limit Exports
S&D Surplus/Deficits Production Consumption
6.35.7
0
1
2
3
4
5
6
7
8
9
2016-17 2017-18 2018-19 2019-20 2020-21 2021-22Potential
2021-22Likely
Suga
r P
rod
uct
ion
(M
MT)
Russia - Suboptimum Weather Reduced Crop Potential
CONFIDENCIAL
Thailand 2021/22 – Crop Recovery Ahead, but it is Likely to dissapoint the most optimistic
8
We are more likely see new crop production closer to 9.5M MT than at the 10.5M MT mark, as the market consensus suggests. Despite the improved
weather conditions so far in 2021, acreage expansion during the first round of plantings in late 2020 was compromised by last year’s drought.
10.5
9.5
0
2
4
6
8
10
12
14
16
2016-17 2017-18 2018-19 2019-20 2020-21 2021-22Consensus
2021-22Likely
Suga
r P
rod
uct
ion
(M
MT)
Thailand - Sugar Production to Dissapoint the Most Optimistic
CONFIDENCIAL
India 2021/22 – No Longer the Threat to World Market Sugar Prices it used to be, On the Contrary
9
The strong subsidized domestic sugar export program in recent years was key to rationalize the India sugar stocks. The record domestic export program
of 2020-21 at over 7M MT is a testimony of the strong global sugar import demand in 2021.
✓ Looking ahead, the sugar production gains are being mostly absorbed by the domestic ethanol program. We currently assume
that the sugar to ethanol diversion in 2021-22 will be 3.2M MT, up from close to 2M MT in 2020-21
✓ In 2022-23, the sugar diversion to ethanol could break the 4M MT mark
7
5
14.6
8
0
2
4
6
8
10
12
14
16
0
1
2
3
4
5
6
7
8
2018-19 2019-20 2020-21 2021-22
Car
ry-I
n (
M M
T)
Do
mes
tic
Exp
ort
s (M
MT)
India - Reduced Role of Exports in Rationalising Sugar Stocks in 2021-22
Exports Carry-in
31.2 31.1
0
5
10
15
20
25
30
35
40
2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
Suga
r P
rod
uct
ion
(M
MT)
India - Acreage Gains are Mostly Directed to Ethanol
Sugar to Ethanol Net Sugar Production
CONFIDENCIAL
India Sugar Policies – World Market Prices Set to Stay Elevated to Connect India Exports
10
The weaker India fiscal position post-Covid makes export subsidies a more challenging proposition. Also, in an environment of tight global sugar
supplies, reflected in the high international sugar prices, why should the India taxpayer bear the cost of an export subsidy?
✓ Note that NY No11 prices have been trading well above the India 2020-21 breakeven export parity, as the market needed
India to maximize domestic exports
✓ We expect such a pattern to repeat itself once again in 2021-22
29,000
31,000
33,000
35,000
37,000
39,000
Oct
-19
No
v-1
9
De
c-1
9
Jan
-20
Feb
-20
Mar
-20
Ap
r-2
0
May
-20
Jun
-20
Jul-
20
Au
g-2
0
Sep
-20
Oct
-20
No
v-2
0
De
c-2
0
Jan
-21
Feb
-21
Mar
-21
Ap
r-2
1
May
-21
Jun
-21
Jul-
21
Au
g-2
1
Sep
-21
INR
/ P
MT
India Domestic Sugar Prices
UP M30 Prices Maharashtra S-30
Current MSP
15.8 15.4
22.020.7
0
5
10
15
20
25
Uttar Pradesh Maharashtra
Ce
nts
/LB
India - Breakeven Sugar Export Parity
2020-21 2021-22
CONFIDENCIAL
Lasting Impact of the 2021-22 CS Brazil Crop Woes
11
The decline of -85M MT in sugarcane crushing in 2021-22, to approximately 520M MT, will not be so easily recovered in 2022-23. With fairly limited
upside potential to total crushing next year, pulling more sugar supplies from CS Brazil will once again need to be done via the sugar mix.
605
520530
545
38
32 3233
0
5
10
15
20
25
30
35
40
45
460
480
500
520
540
560
580
600
620
2016-17 2017-18 2018-19 2019-20 2020-21 2021-22e 2022-23eConservative
2022-23eConsensus
Suga
r P
rod
uct
ion
(M
MT)
Can
e C
rush
ing
(M M
T)
CS Brazil Crush and Sugar Production Outlook
CONFIDENCIAL
Weak Demand, What Weak Demand?
12
The world sugar market is yet to feel the impact of the CS Brazil crop loss of 2021-22. Total CS Brazil exports during Jan-Sep 2021 were a mere 300K
MT less than in the same period of 2020.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Jan Feb Mar Apr May Jun Jul Aug Sep
M M
T
CS Brazil Monthly Sugar Exports Jan-Sep
2021 2020
20.220.5
0
5
10
15
20
25
Jan Feb Mar Apr May Jun Jul Aug Sep
M M
T
CS Brazil Cumulative Sugar Exports Jan-Sep
2021 2020
CONFIDENCIAL13
Conclusions - Structural Deficit Situation to Persist For Longer, Keeping Sugar Prices Well Bid
✓ The disaster CS Brazil sugarcane crop of 2021-22 will have long
lasting impact on Brazil sucrose availability in the medium to
longer term
✓ Weather risk premium is set to stay high, as there is little signs of
sustained normalization of weather pattern globally (80%
chances of La Niña)
✓ As global stocks continue to deplete, domestic sugar prices in
key markets have moved higher, improving import economics
and providing support to the white premium
✓ Sustained Fund Interest in Commodities/Sugar - efficient hedge
against inflation
✓ We expect NY No11 prices to trade at a premium to the India
breakeven export parity (like in 20-21), if India sugar exports are
to be maximized
In the very-short term, the sugar market is missing a spark and is likely to remain in a range-bound regime. However, during 2021 we saw NY No11
sugar prices range move from US$ 15-17c/lb all the way into the current US$ 19-21 c/lb range under the pressure of weather events and macro
repricing. We might see the same process continuing into the 2022 calendar year.
-6
-4
-2
0
2
4
6
8
10
12
2017-18 2018-19 2019-20 2020-21 2021-22
Mill
ion
MT
RV
Source: Alvean
Global Sugar Production & Consumption Balance(Oct-Sep Basis, RV)
CONFIDENCIALMarch, 2017
SUGAR MARKETDRIVERS CS BRAZIL WEATHER
Crop Recovery in 22-23?
INDIA SUGAR POLICIESPace of Exports
PRICING INBALANCEExporters are well hedged but importers…
ENERGYStructurally
bullish?
Conclusions - Structural Deficit Situation to Persist For Longer, Keeping Sugar Prices Well BidIn the very-short term, the sugar market is missing a spark and is likely to remain in a range-bound regime. However, during 2021 we saw NY No11
sugar prices range move from US$ 15-17c/lb all the way into the current US$ 19-21 c/lb range under the pressure of weather events and macro
repricing. We might see the same process continuing into the 2022 calendar year.