INDUSTRY stakeholders are resigned to the fact that the country will have a late opening of the milling season this year. Based on the results of their respective surveys, Vicmico and Hawaiian might start milling by middle of or late next month. These two mills traditionally start milling middle of August.

Low sugar stocks compel the country to import before the next milling campaign kicks in. As the country rushes to import an additional 100,000 mt to bolster domestic supplies, world sugar prices are rallying.

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Raw sugar for October delivery was at US$ 19.88 cents per pound at New York’s Intercontinental Exchange last August 23. At P45/US$, that’s P984 per bag, excluding premium, freight, insurance, and profit margin for importers, traders and retailers. If the 38% tariff is factored in, landed cost of raw sugar will be more than P50 per kilo.

White or refined sugar for October delivery settled at US$575.40 per mt at the London Futures Exchange on the same day. At the same forex rate, it translates to almost P1,300 per bag, excluding premium, freight, insurance and profit margin along the distribution chain. With 38% tariff, its landed cost might reach P60 per kilo.

Though relatively high world prices will preclude sugar smuggling, it will also inevitably lead to high retail prices.

If the country is in deficit, it has to import high-priced sugar to augment domestic supplies; no business man will buy high and sell low. If the country has adequate supplies, retail prices will have to adjust within the world level. Otherwise, reverse smuggling will occur which will create a shortage and still drive retail prices higher.

How come world sugar prices are strengthening despite projections that the coming crop year will be a year of surplus sugar production?

In an interview during the Asia International Sugar Conference in Bali, Indonesia last month, International Sugar Organization executive director Peter Baron revealed that Brazil is expected to produce a record 41 million mt in the season starting October. Its production this current crop year is 36 million mt.

India might produce 26 million mt, significantly higher than its roughly 16 million mt output last season. It may cease being an importer and might instead export 500,000 mt, according to Baron.

For the 2010-2011 season, ISO forecasted that global production will hover between 172 to 173 million mt with a surplus of approximately 2.5 million mt.

London based broker Czarnikow Group Ltd agrees with ISO as far as the estimated surplus is concerned but Fortis Bank Nederland and London-based researcher VM Group believe that the surplus may reach 5.6 million mt.

In terms of percentages, the surplus is only between 1.5 percent to 3 percent of global consumption, a percentage which commodities experts believe will not weigh heavily on prices.

Moreover, sugar broker Kingsman SA is optimistic that sugar prices may maintain or even exceed its current levels due to low physical stocks and adverse weather.

Estimates of a surplus are based on standing crops but the canes still have to be cut, hauled to the mills, processed into sugar and transported to the waiting markets. The vagaries of weather from the harvesting of canes until the delivery of the sweetener can play havoc on these ‘guestimates’.

Jonathan Kinsman, managing director of Kinsman SA, yesterday stated in a Bloomberg interview, “We have very low stocks of sugar around the world and we have a number of weather problems that are threatening to affect production. It’s a combination that’s making people bullish.”

Three weeks ago in Brazil, a record 122 ships in six ports were delayed by the wet weather as they wait to load 3.6 million mt of raw sugar for export. Trucks carrying sugar had to wait almost two days before they can unload their cargo at the ports.

India is also experiencing a drop in its monsoon rainfall which can affect production. Russia is suffering from a severe draught which may decrease output by 20 percent from what was originally projected. China, a net sugar importer, is also poised to rebuild its stocks.

Floods in Pakistan which displaced 14 million people and caused almost US$3 billion in agricultural damage will compel the country to start importing sugar by December. Heavy rains are also hampering production in Indonesia, the largest sugar buyer in Southeast Asia.

Kingsman, who is hosting a conference in New Delhi next week, remarked, “The weather is weird all over the place. We have terrible floods in Pakistan, a mix of floods and dry weather in China and wet weather in Indonesia. If the problems get worse, then the market could explode on the upside.”

“If the price holds above 20 cents you could see some of the biggest funds come and buy,” Kingsman added. Those purchases ‘could push it further but it’s difficult to say how high. The price may fall to 17.5 cents if weather problems are resolved.”

Weather, indeed, plays the spoiler’s role in the sugar market as it did recently in the country’s sugar industry. As former president Erap Estrada said, “Pa weather-weather lang.”

Agriculture Secretary Proceso Alcala’s public announcement of Gina Bautista Martin’s appointment as SRA chair could have come at a more opportune time, instead of during the opening of the Philsutech convention when Bernard Trebol was scheduled to deliver the traditional keynote address as SRA chief on the second day of the convention.

Gina Martin’s appointment is well-received in the industry. Stakeholders salute her competence and integrity. It was not her fault that the announcement of her appointment was ill-timed.

Whether Alcala’s ill-timed announcement was a simple ill-advised blunder or a premeditated act is beside the point. It surely did not make Bernard Trebol ecstatic.

Or is this the present administration’s way of showing who the ‘big boys’ are now? Pa weather-weather lang? God forbid!

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