MARCH 25 Bid Results: Vicmico B=P1,570 and molasses=P8,480; HPCo B=P1,503 and molasses=P8,480; Sagay B=P1,550; Lopez A=P1,027 and B=P1,583; First Farmers (partial) A=P850 and B=1,000.
March 18 Bid Results: HPCo molasses=P8,480; Sagay B=P1,640; Ursumco A=P1,100 & B=P1,407; First Farmers A=P1,000 (partial) and B=P1,200; BISCOM A=P1,149, B=P1,661.05 and molasses=P8,519 (last bidding for CY ’09-’10 on March 16).
* * *
After peaking at almost P2,000 per 50-kilo bag in mid-January, millgate raw sugar prices have been on the decline. Producers can’t help wondering whatever happened to December’s greeting of “Merry Christmas and a Happy P2010 per Bag!”
The law of supply and demand rules. The surge in domestic prices was caused by the rise in world prices which, in turn, was brought about by lack of sufficient sugar stocks to feed global demand.
If domestic prices were held back to levels way below world prices, domestic sugar would have found its way into the more lucrative world market. The result would have been a domestic shortage which would have led, consequently and inevitably, to higher domestic sugar prices.
Government cried out for importation and price caps. The sugar industry cautioned against the dangers of these knee-jerk reactions. It urged government to allow market forces to eventually determine sugar prices.
PGMA’s dimwits still doggedly pushed on with their importation tenders. However, out of the first tranche of 60,000 metric tons which they bid out, only 16,000 metric ton (mt) had takers.
Interestingly, the takers were mostly industrial users. Even the two biggest sugar traders in the country were nowhere to be seen during the bidding. They had more sense and they have a firmer grasp of the market than the so-called economic and financial experts of PGMA.
Guess who’s laughing now.
After hitting a 29-year high of US$ 30 cents per pound last February 1, world raw sugar prices have slumped to a nine-month low of US$ 17 cents per pound last week amid speculations of very promising yields in Brazil and India.
Markos Jank, president of UNICA, the Brazilian Sugar Industry Association, reportedly stated in Sao Paolo last week that Brazil’s crop is in great shape with high yields.
F. O. Licht, the Germany-based soft commodities experts, projected Brazilian output to reach 40.5 million mt in the season starting October 1. Its output for the current season which ends on September 30 is estimated at 36.2 million mt. The company also sees India’s output next season to increase by 7 million to 8 million mt.
Vinay Kumar, managing director of India’s National Federation of Cooperative Sugar Factories Ltd, reported that India’s sugar production from October 1, 2009 to March 15 reached 15 million mt. It represents a 14% increase compared to production for the same period last season of only 13.2 million mt.
The Indian Sugar Millers Association reported that production in Maharashtra, the country’s biggest producing state, may reach 6 million mt, compared with an earlier estimate of less than 5 million tons. Output in Uttar Pradesh might reach almost 5 million mt, compared with 4.1 million mt estimated previously.
By the end of September, Kumar stated that the country’s output is expected to be within the government’s estimate of more than 17 million mt, primarily due to favorable rains which improved cane yields. He also projected that sugar output may reach 22 million mt next season as farmers increased plantings.
India’s increased production puts a dampener on global demand. According to Kumar, “Production is turning out to be better than the most optimistic estimates.” Thus, India no longer needs to import too much sugar.
Agricultural commodities experts Czarnikow Group believes that, for the first time in three years, there might be a global sugar surplus next season while F. O. Licht went as far as saying that global output will outstrip demand by 5 million mt in the season starting October 1.
But for the short term, Thailand’s producers are still optimistic. They should be, considering that they are the world’s second largest sugar exporter next to Brazil.
Prasert Tapaneeyangkul, secretary-general of Thailand’s Office of the Cane and Sugar Board, believes that sugar prices will probably stabilize as import demand outpaces global supply. “Prices are likely to stay around 17 cents to 18 cents a pound as demand remains strong amid a global deficit,” he said last week.
Prasert does not find a rationale for the price slump as drought may damage crops in China and India, while demand hasn’t subsided. He foresees the global deficit to continue next year as India may have a shortfall of 4 million to 5 million tons.
In the end, prices will still be determined by supply and demand or the perception thereof. No amount of government posturing can change this fact.
* * *
The trend in domestic sugar prices is a timely reminder how closely interlinked we are with the global community.
When world sugar prices spiked, producers benefited from the corresponding upward adjustment in domestic prices. Now that world sugar prices have declined, where else would you expect domestic prices to go?
If domestic prices are at levels way higher than world market prices, then sugar smuggling immediately comes in, as it already did. Again, consequently and inevitably, domestic prices will be depressed, as it already is.
We flow with the global tide. As the tide lifts all boats, it also lowers them when the tide changes.
(For reactions and suggestions, email bbacaoco@yahoo.com.)