December 21st, 2016

By João Botelho and Pedro Shinzato

Chinese sugar imports remain weak and Russian production accelerates

Sugar futures again underwent a low-trading session, with the continuous contract for raw sugar on the New York Commodities Exchange declining 0.3% to USD 18.2/lb. With the relatively high macroeconomic outlook (due to slight declines in the Dollar Index and dollar/Brazilian real, along with high oil) the main bearish factor was the release of Chinese customs data showing imports of only 140,000 tonnes for November.

Although the volume is 27.3% higher than October, it represents a decrease of 46.2% when compared with the same period last year. In the first two months of the 2016/17 crop, imports accumulated 250 thousand tons, 59% below 2015/16 and 67% less than the average of the past five crops. This reduction in Chinese purchases has been the main factor keeping the physical sugar market pressured, with important effects on futures' prices.

Monthly imports of sugar - China

Fonte: Alfândegas – China. Elaboração: INTL FCStone

Russian production data released today also showed that sugar production in the country by December 12th had reached 4.96 million tonnes, 4.5% higher than the same period last year. The progress of production however, has been limited by processing capacity and factories have so far consumed only 73.3% of the beet harvested, 10 percentage points below the same period of the previous crop.

Crop monitoring - Russia

Fonte: Associação dos Produtores de Açúcar e Ministério da Agricultura - Rússia. Elaboração: INTL FCStone

It is worth mentioning that the beet harvested still depends on the weather for processing into sugar, as temperatures colder than normal could lead to the vegetable rotting. Should all the volume collected be processed and the recovery rate similar to that registered so far, the country's production would reach 6.77 million tonnes. Maintaining the same premises and considering production of area which has not yet been harvested (assuming similar agricultural productivity), Russian production would reach 6.86 million tonnes. A more realistic though is that the recovery rate will likely to fall over the coming weeks and some of the beet will not be processed, bringing sugar production closer to our estimate of 6.15 million tonnes.

Ethanol on the CBOT maintains its bearish trajectory on strong production figures in the US

Chicago's ethanol prices continued their downward trajectory on Wednesday, responding to the supply and demand latest data released on a weekly basis by the US Department of Energy. Even with improved consumption figures, stronger production and comfortable supply of the biofuel continued to put pressure on January futures' prices, which declined to USD 1.548/gallon, its lowest value in a month.

Between the 10th and 16th of December, American distilleries practically maintained the record pace of operations seen over the previous seven days, reducing the week's production by only 0.4% to 304.6 million gallons. Compared year-on-year, production follows weak on the value seen from the middle of December of 2015, which was 6.5% higher. During the first 15 weeks of the US corn crop 2016/17, weekly ethanol production averaged 295 million gallons, corresponding to a weekly consumption rate of approximately 105.5 million bushels of corn and (to a lesser extent) sorghum.

Weekly production and ethanol prices on the CBOT

Fonte: EIA e CBOT; Elaboração: INTL FCStone.

Throughout the second full week of December, demand for ethanol for blending with gasoline strengthened again, growing 2.7% and accumulating a 5.3% increase in two weeks. At 269.9 million gallons, demand for the biofuel rallied 3.1% over the same period last year, progressing as per the seasonal trend.

Journeys between the holiday season are often drive the country's fuel market. Between 10th and 16th of December, implicit demand for gasoline rose 4.5% on the previous week to reach 2.73 billion gallons, its highest value since the end of September. Should it follows seasonality, gasoline demand should remain at a similar level for another week before declining to its annual minimum between January and February.

Even in the face of stronger demand, US ethanol inventories declined insignificantly last week. Reduced by 672,000 gallons (a weekly variation of -0.1%), total supply of the biofuel remains above 800 million gallons, equivalent to 3 weeks of consumption. Among the regions, the main movement was seen in West Coast stocks, which declined by 3.1% over the week, and are currently at around 15% below the level recorded for the same time last year.  


Prices - Sugar

Prices - Ethanol



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