wmeubank@ocp.kcmo.com
PRUDENTIAL SECURITIES, INC.
One New York Plaza, New York, New York
(October 6, 1997) SUGAR: World sugar futures posted moderate gains last week. We attribute the advance to the relatively orderly expiration of the October contract on September 30, with just 180,000 tonnes of sugar tendered against futures versus expectations of as much as 400,000 tonnes. October expired at a discount of 39 points to March, having narrowed from a discount of about 72 points in just a few days.
The results of the latest beet tests for several European Union countries show that as a whole, the region's beet crop has made excellent progress, and processing is starting early in several areas. As we have noted in several recent weekly reports, the improved European beet outlook has caused various statistical sources to raise their 1997/98 production expectations. Europe's improved production outlook probably was a factor in both the price advance's halt in mid-August and the price weakness in September.
A Polish sugar trade representative stated last week that the country's 1997/98 output was expected to be about 2 million tonnes, roughly 300,000 tonnes below the year-ago level. Exports in 1997/98, forecast by the USDA at about 150,000 tonnes, are now expected (by Polish sources) to be about 60,000 tonnes, a far cry from 1996/97 exports of about 545,000 tonnes. Poland's reduced export capacity could help firm the whites/raws premium over the next two to three months.
Cuba's Communist Party will hold its next congress from October 8-10. It is anticipated that the congress will stress the need for greater efficiency in the sugar sector, and presumably will disclose specific measures to do so, such as closing some cane-processing plants. There has been talk that the congress will set 6 million tonnes as an annual production target, to be achieved over about five years. That would compare with the recent low of about 3.3 million tonnes (1994/95) and with the near-record 7.6 million tonnes achieved in 1990/91.
We anticipate that world sugar futures will work higher for the intermediate/longer term; our next objective, basis March, is a test of 12.10 cents per pound. Last week, March moved from a discount to a premium versus May; we look for further widening of this premium.
Arthur Stevenson
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