Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
With the exception of communities in remote parts, few would not
have heard of coronavirus Covid-19 by now and the impact it is
having in people's lives - whether through the measures taken by
governments to check its escalation or sadly, being a victim of it.
Local sugar industries are not immune from spillover impacts and
have begun to be impacted a variety of problems emanating from
logistics to stalling supply chains. Mercifully, the sugar industry
is unlike the relatively perishable service industries (air travel,
hospitality and tourism). Nonetheless, "the ecosystems in which
companies operate mean that a disruption to one industry or set of
activities ripples to others"1. Doubtless, under the circumstances,
it is imperative that best information is sourced so an informed
decision is possible. But where this is in short supply,
invariably, opportunism thrives from speculation - muddying
waters.
The classic example of this is the recent Czarnikow piece2
suggesting that the pandemic will result in global sugar
consumption decreasing in the current 2019/20 season by 2 million
tonnes. The 253 words piece is light on facts and heavy on
speculative reasoning bereft of any in-depth analysis. In all
fairness, the trader points out that their estimate is "a
best-guess at this stage and are not wholly scientific" and
"further modifications may be required as we learn more
information". But this does not stop it from concluding that
"overall consumption in the 2019/20 season will hardly increase."
The central thesis is that the consumption decline "is due to the
collapse in out-of-home food and drink consumption, and the
difficulties faced in operating normal supply chains." It is bit
far fetched to suggest that with closures of restaurants/bars in
many countries that sugar consumption will take a hit - as if the
people deprived of the custom will starve rather than replenish
themselves from alternative source/s. Yes, the supply chains have
been hit by the crisis. Recent press reports3 from China note
difficulties in transporting and distributing sugar from factories.
But this does not entirely mean sugar consumption has been
adversely impacted. Another recent press report4 from Myanmar
suggests that recently 50,000 tonnes of sugar was smuggled into
China in response to the rise in local demand.
What is astonishing is that Reuters ran a newspiece5 based on
the sketchy note by Czarnikow, and subsequently re-reported by
other news media.
Only time and rigorous analysis will tell the relative impact of
the coronavirus on both sugar production and consumption. As the
press report3 from China points out, the difficulty in securing
agricultural inputs in advance of the commencement of the planting
season will result in sugar crops acreage decreasing. Indeed,
analysis of the impact on production has been sparse.
As far as the sugar industry is concerned, the bigger elephant
in the room is the price of crude oil tumbling to US$30/barrel on
8th March 2020 following an oil price war between Russia and Saudi
Arabia. In a note, the investment bank Goldman Sachs said that in
Q2 2020, this may further fall to US$20/barrel exacerbated by the
Covid-19 pandemic. The consequence of this is that millers in
Brazil are going to divert more cane to sugar production with
ethanol becoming less competitive with gasoline. Press reports
suggest that sugar production may increase by up to 6 million
tonnes if not more when the 2020/21 campaign begins in April. This
suggests that this year's (2019/20) rise in sugar prices will be
short-lived. Add to this, the fall in the value of the Brazilian
real against the US dollar. The Brazilian real depreciated from
4.03 at the turn of the year to 4.79 on 13th March. A weaker real
against the dollar means that raw sugar, priced in dollars, becomes
more attractive to producers than hydrous ethanol in the domestic
market.
