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Was the sugar sector influenced by Brazil during the crisis?

As is often the case with sugar, it is the Brazilian situation that has had the biggest impact on the market in recent weeks.

As such, over 25 years, Brazil has become a giant of the sugar sector with a 4-fold increase in its production, reaching 30 million tons (Mt) in 2019, after rising to 40 Mt in 2016. It is largely thanks to the Brazilian government's ethanol policy over the past 40 years and the flexibility of cane-processing plants that the growth in sugar production has been achieved. These plants can produce sugar and ethanol in proportions set by their configuration, which allows Brazil to arbitrate its production each year according to the world market (demand, prices, competition etc).

But Brazil has also seen an explosion in exports. Thus, by exporting up to 70% of its production, some years it represents nearly 50% of world trade, thus exerting a considerable influence on this market.

During this period of health crisis, the weakness of the Brazilian real against the dollar and the collapse in the price of oil have pushed Brazilian factories to strongly orient cane towards sugar production and export at the expense of ethanol production. So Brazilian production is expected to increase by 10 Mt.

India, which had overtaken Brazil last year in terms of production, is also expected to see an increase in production, while domestic consumption is expected to decline in line with lockdown. In India, the health crisis, in addition to consumption, has temporarily impacted exports as Indian ports idled for several weeks. However, these are now back up and running.

Thanks to these increases in production in Brazil and India, the world sugar market, which last year posted a deficit of 9.8 Mt, is therefore expected this year to be only slightly in deficit at 1.6 Mt (source: FO Litch).

In addition, sugar consumption has slowed worldwide due to the closure of bars and restaurants and the cancellation of sporting and festive events that impact the consumption of sodas and ice cream. Consumption will therefore not continue the growth of recent years.

The increase in sugar production combined with the slowdown in world consumption has led to lower sugar prices, which reached their lowest level for 12 years in April.

In France, beet-planted areas are expected to fall by 5% this year in anticipation of plant closures announced for 2021, raising hopes among sugar producers for a recovery in European prices.

Finally, as expected, exports to third countries are down again with 400kt planned for the 2019/2020 campaign compared to 570kt achieved last year and 1337Mt two years ago (FranceAgriMer data).


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