wmeubank@ocp.kcmo.com
PRUDENTIAL SECURITIES, INC.
One New York Plaza, New York, New York
(September 29, 1997) SUGAR: World sugar futures extended their decline last week, with October futures trading below 11.0 cents per pound for the first time since mid- July. The weakness reflected several factors, including:
–Continued speculative long liquidation in the October contract (ahead of its September 30 expiration).
–Expectations that a large tonnage of Brazil sugar may be tendered against the October contract.
–Good progress for the West European beet crop.
–Reports of beneficial rainfall in some Asian cane-growing areas.
–A negative technical situation.
The eighth British beet test of the season showed average sugar content of 17.2% versus 17.8% a year ago; the average sugar weight per root was reported at 128 grams, up from 112 grams last year. In France, the Sugar Intervention Board is looking for 1997/98 output to exceed the year-ago level, and believes production could approach or match the record set in 1993/94.
Denmark's third beet test of the season indicates a production level of 9.67 tonnes of sugar per hectare, up from 8.26 tonnes a year ago. The average sugar content was reported at 16.9%. down from 18% last year. In Sweden, the season's third test showed average sugar content of 17.5%, down from 18.1% in 1996; the average yield was calculated at 8.83 tonnes per hectare, up from 7.99 last year.
In Russia a spokesman for Semsvekla, a state- controlled sugar company, stated that 124,500 hectares (13.2% of the country's overall beet area) had been harvested as of September 21; that compares with a harvested area of 118,600 hectares at this time last year. Harvested beet tonnage (as of September 21) was reported at 2.65 million, about 28.6% above the year-ago level.
Official Chinese press sources have reported January-July white sugar output at 4.7 million tonnes, about 5.4% above the year-ago figure. Improved production prospects as well as a reserved buying posture have prevented China from emerging as a bullish market factor (at least so far).
The latest U.S. agricultural attache report for Pakistan projects 1997/98 refined sugar output at 2.96 million tonnes, about 16% above the year-ago level. The improvement is attributed to: (1) favorable weather conditions during the growing period; (2) increased use of chemical fertilizers; and (3) availability of governmental financial incentives. Obviously, the improved production outlook translates into reduced import needs, which is another negative market factor. The USDA is projecting Pakistan's 1997/98 imports at 200,000 tonnes, down from about 600,000 tonnes imported during the 1996/97 season.
The upcoming October expiration will be the market's near-term focus of attention. We anticipate that #11 sugar prices will remain under downside pressure for the time being, but maintain our expectation of long-range price appreciation.
Arthur Stevenson
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