Frank Jenkins: World Sugar Analysis

Frank Jenkins, Jenkins Sugar Group

The following sugar market analysis is used by permission of Frank Jenkins of The Jenkins Sugar Group:

The USDA will formally announce a 300,000 short ton (272,155 metric tonne) increase in the 2009-10 Tariff Rate Quota tomorrow. The Increase is for raw sugar only and is for the period from when the Certificates of Quota Eligibility are allocated through September 30, 2010. Traders in London seemed to like the announcement, as prices on the LIFFE whites contract improved by $11.20 to finish the day at $572.00 after peaking earlier at $574.70. This would indicate an October price in excess of 17.00 when trading opens on the ICE futures and a new 10-week high. To the extent that the USDA„s announcement is responsible for the excitement in London, it is knock-on effect and boosted sentiment on additional evidence that the nearby market remains extremely tight, with the US joining Thailand, the DR and the Philippines as extraordinary importers. The announcement all but precludes the US being an importer of whites this summer, at least under a refined sugar TRQ. As the USDA announcement came immediately following the July #11 expiry, any stress will be confined to the spot cash market once the US Trade Rep allocated the CQE‟s in the next few days (hopefully).

In word market fundamentals, Unica reported that the center-south has produced 8.95 million tonnes of sugar through June 16, a 31 % increase over last season. In the first half of June 2.3 million tonnes of sugar were produced – also 31 % up on last year. Impressively, the 31 % increase comes from 173.7 million tonnes of cane – a 20 % increase over last year.

India‟s Farm Ministry stated that it plans on imposing an import tax on while sugar in the new crop year, but will wait until more is known about the size and state of the 2010-11 crop before setting a level. While India‟s monsoon is achieving better coverage, the rains were 13 % below normal in the June 1-July 5 period. Rains are expected to spread to Uttar Pradesh in the next two to three days.

In a late-game upset, Singapore’s Wilmar International, the world‟s largest listed palm oil trader, agreed to buy CSR‟s sugar arm, Sucrogen, which had been expected to go to Chin‟s Bright Food Group.

In the NAFTA region: The following is our projection of the S&D for this year and next, adding the TRQ increase adjusted for a further 21,000 ton shortfall. The all-but-ample ending stocks/use ratio for 2009-10 of 13.27 % suggests to us that the July WASDE report, due out Thursday, will include a further upward revision in domestic food use number, tipping the scales back towards the “marginally sufficiently supplied” zone. We may be cynical, but the timing “preview” will leave the USDA looking at least somewhat proactive instead of having to react to a screwed-down stocks/use ratio should the use number indeed be increased again.

The S&D currently shows no high tier raw sugar imports and in no way reflects the difficulty traders will have in sourcing raw sugar in the current environment. We believe that there will be an outsized TRQ shortfall and that high tier imports, mainly for the badly congested center-south of Brazil, will at the end of the day be the source that ultimately keeps the US raws market in supply. The issue is it seems that the center-south is already overstressed by its role as the sole entity responsible for bridging from the past few year‟s deficit markets to the anticipated surplus.

Read more at Jenkins Sugar Group.