26th Apr 2013, by Agrimoney
The selldown is not over for raw sugar futures, despite their fall to near-three-year lows this week, with long-term prospects poor too thanks to the healthy levels of supplies, ABN Amro said.
The bank, in a quarterly report, said that there was "still some room left for depreciation" in New York raw sugar futures, which on Thursday touched 17.25 cents a pound, the lowest for a spot contract since July 2010 .
The forecast reflects forecasts of a bumper cane harvest in Brazil, the top sugar producer and exporter, this year, following a campaign by growers to replenish ageing crops.
While ethanol will swallow an increased proportion of the crop in the newly-started crushing season, thanks to the incentive offered by tax concessions and higher Brazilian gasoline prices and blending rates, processing economics still suggested a further decline in sugar prices.
"Sugar is currently still trading above ethanol parity," the level at which the sweetener and the biofuel offer equal financial appeal to cane mills, ABN analyst Mathijs Deguelle said.
Ethanol vs sugar
Indeed, the bank forecast that prices will "drop below the 17-cents-a-pound frontier, and briefly test the lower 16-cents-a-pound range.
"Considering ethanol parity, however, we expect this drop to be brief and prices to appreciate slightly by the end of the [current] quarter, recovering to around 17 cents a pound."
The bank told Agrimoney.com that it calculates at "just under" 17.00 cents a pound, in sugar terms, the level at which making sweetener or ethanol are equally financially attractive to mills.
ABN backed the "exceptionally large short" position taken by speculators, whose net short in New York raw sugar futures and options is at 53,000 contracts, according to latest regulatory data, a historically large number, if below the record 83,000 contracts reached earlier this month.
Longer-term price weakness?
ABN signalled a downbeat stance on sugar prices longer term too, given that "production growth still manages to outpace the growth in demand", leaving the world on course in 2012-13 for a third successive season of output surplus, and initial indications of a fourth in 2013-14.
After 2013-14, "another two years would be needed to absorb surplus stocks, which press heavily on prices, as demand is picking up only modestly, while supply is ample", Mr Deguelle said.
The bank also revealed a cautious assessment on arabica coffee prices, foreseeing a drop in prices to the lowest since 2009.
But it was more upbeat on cocoa, forecasting that the potential for a world production deficit in the marketing year, to September, would lift New York prices to some $2,400 a tonne on a three-month horizon, with further gains later in 2013, taking the year average price to $2,500 a tonne.
The selldown is not over for raw sugar futures, despite their fall to near-three-year lows this week, with long-term prospects poor too thanks to the healthy levels of supplies, ABN Amro said.
The bank, in a quarterly report, said that there was "still some room left for depreciation" in New York raw sugar futures, which on Thursday touched 17.25 cents a pound, the lowest for a spot contract since July 2010 .
The forecast reflects forecasts of a bumper cane harvest in Brazil, the top sugar producer and exporter, this year, following a campaign by growers to replenish ageing crops.
While ethanol will swallow an increased proportion of the crop in the newly-started crushing season, thanks to the incentive offered by tax concessions and higher Brazilian gasoline prices and blending rates, processing economics still suggested a further decline in sugar prices.
"Sugar is currently still trading above ethanol parity," the level at which the sweetener and the biofuel offer equal financial appeal to cane mills, ABN analyst Mathijs Deguelle said.
Ethanol vs sugar
Indeed, the bank forecast that prices will "drop below the 17-cents-a-pound frontier, and briefly test the lower 16-cents-a-pound range.
"Considering ethanol parity, however, we expect this drop to be brief and prices to appreciate slightly by the end of the [current] quarter, recovering to around 17 cents a pound."
The bank told Agrimoney.com that it calculates at "just under" 17.00 cents a pound, in sugar terms, the level at which making sweetener or ethanol are equally financially attractive to mills.
ABN backed the "exceptionally large short" position taken by speculators, whose net short in New York raw sugar futures and options is at 53,000 contracts, according to latest regulatory data, a historically large number, if below the record 83,000 contracts reached earlier this month.
Longer-term price weakness?
ABN signalled a downbeat stance on sugar prices longer term too, given that "production growth still manages to outpace the growth in demand", leaving the world on course in 2012-13 for a third successive season of output surplus, and initial indications of a fourth in 2013-14.
After 2013-14, "another two years would be needed to absorb surplus stocks, which press heavily on prices, as demand is picking up only modestly, while supply is ample", Mr Deguelle said.
The bank also revealed a cautious assessment on arabica coffee prices, foreseeing a drop in prices to the lowest since 2009.
But it was more upbeat on cocoa, forecasting that the potential for a world production deficit in the marketing year, to September, would lift New York prices to some $2,400 a tonne on a three-month horizon, with further gains later in 2013, taking the year average price to $2,500 a tonne.
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