The weather effect: what it means for global sugar markets. Platts 8th Annual Kingsman Asia Sugar Conference September 8, 2017

Transcription

1 The weather effect: what it means for global sugar markets Platts 8th Annual Kingsman Asia Sugar Conference September 8, 2017

2 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 Why we care about the weather? Weather risks increase when we count on less origins 22% 20% 18% 16% 14% 12% 10% Share of world's production Brazil Thailand (RHS) 8% 7% 6% 5% 4% 3% 2

3 Cane vs Beet Cane: Grass crop Longer development cycle: 12 months and more Cane can age! 3-6 year crop Beet: Root crop Shorter development cycle: 5/6 months development One time crop Cane has more time to recover from severe weather and it is more resistant than beet Older cane is the more vulnerable to the weather conditions Beet crop is hit harder by severe weather 3

4 Vegetative stage: Brazil Intercrop rains and ag yields do not show a straightforward correlation 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% Rains deviation from norm in SP and agricultural yields Intercrop rains Ag yields (RHS) But yields do no decrease only because of the weather Age of cane and agricultural yields CS Yields (RHS) Age of Cane % 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Cane profile in Brazil in 2016/17 ag yields (RHS) % of total 1 yrs 1,5 yrs 2nd cut 3nd cut 4th cut 5th cut >5th cut Bis

5 Vegetative stage: Cane - Brazil Rains during the harvesting season might be more important for agricultural yields 90% 70% 50% 30% 10% -10% -30% -50% Rains deviation from norm in SP and agricultural yields Intercrop rains Crop rains Ag yields (RHS) Rains deviation from norm and yields in CS Brazil in % 50% 0% -50% -100% -150% Apr May Jun Jul Aug rain deviation from norm Yields (RHS)

6 Vegetative stage: Cane - Thailand Looking at the rains and weather in Thailand it is also not that straightforward 0% -10% -20% -30% -40% -50% -60% Kanchanaburi Yields Dep from normal rain Explanation might be in cane prices paid to farmers Yields Kanchanaburi Cane prices

7 mt/ha mln mt mt/ha Vegetative stage: Sugar beet Russia As cycle of the sugar beet growth is much shorter than cane, the rain/yields relationship is obvious: Russia: rains deviation from norm and ag yields 100% 50% 0% -50% -100% Ag yields (RHS) Krasnodar Penza Voronez Ag. yields and sugar production in Russia Production (RHS)

8 1H Apr 2H Apr 1H May 2H May 1H Jun 2H Jun 1H Jul 2H Jul 1H Aug 2H Aug 1H Sept 2H Sept 1H Oct 2H Oct 1H Nov 2H Nov 1H Dec 2H Dec 1H Jan 2H Jan 1H Feb 2H Feb 1H Mar 2H Mar Harvesting stage: example of CS Brazil Rains during crop are good for agricultural yields, but not so good for 1. sucrose content 2. industrial yields 3. crushing pace One day lost to rain in CS Brazil at the peak of the crop would result in: 3 mln mt of cane crushed less k/mt sugar lost/day (depending on the sugar mix of course) Rains disrupts vessels loading in the port and can create huge line-up Overall, it has a direct implication on the spreads and flat price CS Brazil: Fortnight cane crush 12/13 13/14 14/15 15/16 16/17 17/18E 8

9 Weather anomalies: El Nino and La Nina El Niño and La Niña are opposite phases of what is known as the El Niño-Southern Oscillation (ENSO) cycle. The ENSO cycle is a scientific term that describes the fluctuations in temperature between the ocean and atmosphere in the eastcentral Equatorial Pacific But what it means for the sugar market? 9

10 Weather anomalies: El-Nino 10

11 Weather anomalies: La Nina 11

12 El Nino and monsoon in India Almost always monsoon is below LPA when EL Nino happens But we don t need El Nino for the weather to be abnormal % Monsoon rains Departure from Long Period Average Strong-Very strong Weak-moderate No El Niño

13 cts/lb mln mtrv mln mtrv Looking back: El Nino effect on production How much of a decrease we can attribute to EL-Nino? World Sugar balance (Oct/Sep) NY #11 Monthly continuation chart Production 20% 10% 0% -10% -20% -30% -40% Surplus/Deficit Acreage and yields change CS Brazil India EU (28) Thailand China Russia Ukraine South Africa acreage yields production 13

14 Current weather prospects Thailand: above average rains; production can reach above 11.5 mln mt ( 1.8 mln mt y-o-y) India: normal rains; production to recover to 24.5 mln mt ( 4.5 mln mt y-o-y) China: Normal/above average rains; production to reach 10.5 mln mt ( 1.3 mln mt y-o-y) EU: good weather conditions; record crop around 20 mln mt is expected ( 3.2 mln mt y-o-y) 14 Source: MDA weather services

15 Conclusion Many factors expect weather affect agricultural yields Without weather anomalies we can have weather deviation from normal and with the climate change this might be more and more often Increased investments in more resistant cane/beet varieties and in fertilization/renovation of the fields would help to substantially reduce weather risks 15

16 Thank you for your attention! 16

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