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PRUDENTIAL SECURITIES, INC.
One New York Plaza, New York, New York
(November 10, 1997) SUGAR: The market's recent decisive advance through 12.20 cents per pound, basis March, and its ability to hold above that level, seems to have caught many traders by surprise. Market sentiment has improved due to the firmer technical picture and a pick up in physical offtake.
Brazilian raw values have firmed appreciably over the last two weeks, lending credence to earlier market talk that Russia had bought about five cargoes of that type sugar. (Values for North Brazilian sugar were quoted last week at about 30 points below March futures versus a 60-point discount two to three weeks ago; the sugar was for November-December shipment.) Russia's apparent need to purchase this sugar reflects the country's poor beet harvest progress (which we have discussed in several recent Weekly Fundamental Outlook commentaries) as well as apparent crop difficulties in Cuba, Russia's chief sugar supplier.
India also has been in the news as a recent buyer of sugar. Last week, a spokesman for the country's cane millers stated that about 75,000 tonnes for November-December delivery had been purchased since August. Given India's sharp production decline, there has been a great deal of speculation regarding its import requirements during 1997/98 (October-September), the ultimate scope of which will hinge on how low the government lets domestic stocks fall. If governmental planners wish to see stocks remain at relatively high levels, consumer needs will have to be met via proportionally larger imports. The market's current view is that perhaps as much as 800,000 tonnes may be imported during the second half of the season. Clearly, purchases of this magnitude would be a potentially supportive long-range factor.
Indonesia's National Logistics Board, a state-controlled entity, is reportedly looking to import about 60,000 tonnes of whites (February-April shipment), probably from Thailand. Pressure from ,international creditors, such as the World Bank, has caused Indonesia's government to “liberalize” various commodity operations, but apparently the National logistics Board will be retaining its white import monopoly rights. National elections are scheduled in March and April, and some traders believe that the government will be willing to authorize large sugar imports in order to keep a lid on domestic prices ahead of the elections.
A spokesman for the Sugar Growers of the Central American Isthmus (AICA) recently said that the group's six member countries expected to export about 2.3 million tonnes of sugar during the 1997/98 season, up 53% from the previous year's level. Given earlier concern that El Nino-related dryness would hurt production, these plans may come as a surprise, but use of large-scale irrigation apparently has enabled the region's cane growers to boost output.
Recent weather reports from South Africa indicate that precipitation has fallen below the seasonal average, raising the possibility that a protracted El Nino-induced dry period may have started. South Africa is expected to produce about 2.5 million tonnes of sugar in 1997/98; output in neighboring Zimbabwe is forecast at about 600,000 tonnes. A production setback in this region would be potentially long-range price supportive.
The market continues to look for East European sugar output to fall in 1997/98 versus a year ago. In Poland, for example, sugar industry sources are projecting output at 1.9 million tonnes versus 2.3 million in 1996/97 (as of end-October, production had reached 700,000 tonnes). In Hungary, local industry sources are projecting the new outturn at 480,000 tonnes, about 60,000 tonnes below the 1996/97 level, mainly due to a reduction in beet area.
The European Union authorized the export of 84,500 tonnes of whites at its most recent weekly tender (November 5), a figure that was not only down from 104,350 tonnes at the corresponding tender in 1996 but also interrupted an unbroken series of six tenders in which the export authorization exceeded the year-ago level. Cumulative 1997/98 export authorizations have reached 1.24 million tonnes versus last season's comparable cumulative figure of 0.92 million tonnes. This season's heavy renderings have acted as a negative market factor.
We continue to look for long-range price appreciation. We anticipate that March futures will hold near the 12.0-cent level on any near-term pullback.
Arthur Stevenson
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