Sugar sweetening up: NAB

20 September 2013

Sugar prices stabilised in August following a prolonged period of steady declines, according to the latest Rural Commodities Wrap from National Australia Bank (NAB) Agribusiness.

While prices have trended downwards since their three-decade high in October 2011, they have remained above the ten year average of 15.70 US cents per pound.

According to Khan Horne, General Manager of NAB Agribusiness, prices are expected to stabilise in the short term and enjoy reduced volatility in the medium term as most of the expected surplus in 2013-14 is already priced in. Moreover, an increasing trend of diversion of sugar cane supply into ethanol production in Brazil is also going to provide some support to sugar prices.

"Downside risk to prices is presented by the weaker Brazilian real and Indian rupee. As Brazilian production represents nearly 50 per cent of the global market, any depreciation in the real makes their exports more competitive and can have a sizeable market-moving impact."

While a fourth consecutive year of surplus global sugar production is expected in 2013-14, both the United Stated Department of Agriculture (USDA) and International Sugar Organisation (ISO) have revised down their surplus estimates to 8mt and 4.5mt respectively.

"Robust demand from emerging economies is expected to partly counteract the solid production outlook for the three largest producers - Brazil, China and Thailand," said Mr Horne.

"In China, India and Brazil, shifting dietary patterns among the rapidly rising middle class is seeing a growing demand for discretionary items such as protein, sugar and more processed food.

"Indonesia, the world's largest importer of raw sugar, is expected to double its demand to 5.4mt after heavy rains caused extensive damage to the country's cane crops."

Australia is the third largest exporter of sugar in the world, with around 80 per cent of its production destined to go overseas at a value of around AUD 1.3 billion.

The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES)is forecasting exports of 2.9mt and production of 4.25mt, down slightly from 4.3mt the year prior.The forecast decline reflects flood damage in new plantings in early 2013.

The Australian sugarcane crushing season is now more than halfway through. While some regions in northern Queensland are enjoying optimal crushing conditions, other areas have experienced lower than expected yields from old standover crops.

The NAB Rural Commodity Index fell 1.9 per cent in AUD terms in August following the loss of steam in the price growth trajectory for livestock after two months of solid gains and an appreciation of the AUD. In USD terms, the index experienced a corresponding marginal decline of 1.6 per cent.

Agribusiness View provides the latest insights from NAB Agribusiness. Visit nab.com.au/agriview to sign up as well as to find the contact details for your nearest NAB Agribusiness Manager.

Important Note: Any advice in this editorial has been prepared without taking into account your objectives, financial situation and needs. Before acting on this advice, you should consider its appropriateness to you.

About NAB Agribusiness

National Australia Bank (NAB) Agribusiness employs more than 620 agribusiness banking specialists in 110 metropolitan and regional locations Australia-wide. The Agribusiness team use their local and industry knowledge to better understand the unique environmental and economic needs of farmers and businesses beyond the farm gate - whether they provide inputs into agriculture or process, distribute or market primary produce. NAB’s flexible range of agribusiness products and services is delivered by listening to and working with customers, to tailor the best packages and advice for their businesses. For further information please visit www.nab.com.au/agribusiness.

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Beth Brophy

M: +61 (0)477 387 982

beth.brophy@nab.com.au