EU sugar farms start to gear up
Export limits to end in 2017
EUROPEAN sugar companies are getting ready for a surge in overseas sales when export limits end in 2017, opening the door for competition with major producers such as Brazil.
The EU will become a net exporter of the sweetener and shipments may reach 4 million tons a year, according to Rabobank International. That is almost triple the current maximum of 1.37 million tons.
A bigger presence by Europe in the sugar market may shift trade patterns for Brazil, which dominates the global industry and sells to countries in the Middle East and north Africa. Sugar prices have fallen to the lowest in six years after a glut that has lasted since 2011.
“All the big traders are positioning themselves to get a piece of the pie,” said Tracey Allen, an analyst at Rabobank.
“There’s going to be a lot of competition for that volume.”
EU trading houses are preparing for more business. French producer Tereos bought Napier Brown Sugar in May and started a distribution business last year. Most growers use sugar beets to extract sugar and have seen output increase with better growing techniques and favourable weather. Yields rose about 10 percent since 2009, Eurostat data show.
The opposite is happening in Brazil, where aging cane toward the end of a six-year crop has not been replanted. Cane yields fell 4.8 percent in six years up to the 2014/15 season, data from industry group Unica show. Brazil accounts for about 45 percent of global sugar exports, US Department of Agriculture data show.
“If you take Brazil, where there’s practically no investment and no expansion in terms of capacity growth, you have to start looking around the world to see where you can see growth,” ED&F Man commodities research head Kona Haque said. “The EU can fill the gap.”
European farmers may switch to growing sugar beets instead of wheat because it is more profitable, according to Claudiu Covrig, a senior agricultural analyst for Kingsman. The increased supply could push sugar prices down even further, he said.
Brazil sends about a third of its sugar exports to the Middle East and north Africa, where the raw sweetener is turned into white sugar and sold. European producers, who are closer to those buyers, already make refined sugar from beets.
The average sugar price in Europe may fall to as little as
400 (R5 548) a ton by 2019, 4.1 percent lower than now, according to European Commission estimates in December.
Even with more exports, Europe would trail Brazil’s exports of 24.1 million tons last year, according to the International Sugar Organisation.
The EU may ship as much as 2.5 million tons in the first year after quotas end as it fights for business, Kingsman’s Covrig estimates. – Bloomberg
All the big traders are positioning… to get a piece of the pie. There’s going to be a lot of competition.