Economic and Social Department

 global information and early warning system on food and agriculture

 food outlook
No. 5 Rome, November 2003

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Cereals: Supply/Demand Roundup

Cereals: Current Production and Crop Prospects

Cereals: Trade

Cereals : Carryover Stocks

Cereals: Export prices

Ocean Freight Rates

Meat and Meat Products

Milk and Milk Products

Oilseeds, Oils and Oilmeals






Record output and surplus stocks will continue to pressure world sugar prices into new marketing year


Surplus stocks of sugar continued to expand throughout the 2002/03 marketing year, exacerbated by record output in several key producing nations, notably Brazil. World raw sugar prices (expressed by the International Sugar Agreement prices) fell in response to market uncertainties regarding much larger-than-anticipated end-of-year stock levels to under 6 US cents per pound for the first time since August 2002. Current estimates of final 2002/03 production levels continue to support FAO’s upward revisions in production.

FAO’s latest estimate of global sugar output in 2002/03 is 147.1 million tonnes, up 2.1 million tonnes from the May forecast, largely as a result of record production in Brazil, China, India and Thailand (among the largest and most influential sugar producing nations worldwide). Although record sugar output in Brazil was largely anticipated by the market, record production in the other three producing nations may have resulted in more pronounced downward pressure on both near-term and new-crop sugar prices. The upward revision indicates that production levels currently stand 4.2 million tonnes higher than the November 2002 forecast and 10.2 million tonnes above the estimate for the 2001/02 marketing year, which is more significant in terms of market fundamentals for the new crop.

World Production and Consumption of Sugar

 (million tonnes, raw value)
WORLD 135.6 147.1 135.7 139.1
Developing Countries 96.0 104.3 88.9 91.7
Latin America     
& Caribbean41.543.024.324.8
Near East4.65.810.210.6
Far East44.550.247.248.9
Developed Countries 39.6 42.8 46.7 47.4
of which: EU(16.2)(18.3)(14.7)(14.9)
North America7.47.810.610.0
Source: FAO

Record output in Brazil results in higher-than-anticipated stocks levels


Although earlier forecasts had indicated that production in Brazil would potentially reach record levels, finalized estimates have surpassed even initial expectations of output. Higher- than-anticipated yields, favourable weather conditions and high processing capacity utilization rates have resulted in increased stocks levels, particularly in the center-south production area. Reports of declines in wholesale ethanol prices in the middle of the summer point to uncertainty in the market as to how much sugar will be directed toward export channels, the domestic sugar market or ethanol production. Some reports say that more output will be directed toward potentially higher returns from the domestic sugar market in Brazil as the result of low world prices and recent appreciation of the real over the US dollar. Alternatively, there are some indications that export volumes for the new marketing year 2003/04 could surpass last year’s levels by as much as 1 million tonnes. FAO’s November estimates for this past marketing year also confirm earlier reports of record production in China and Thailand and much better-than-anticipated output in India. These late season increases were more than offset by declines in the Caribbean, particularly in Guatemala.

Further price erosion likely from stock build-up


Downward price pressure on the world raw sugar price will most likely continue well into the 2003/04 year. Continued reports of increased production in these countries have pressured the International Sugar Agreement (ISA) daily prices downward to an average 6.05 US cents per pound (through 15 October 2003). Monthly ISA prices averaged 5.98 US cents per pound in September, declining to their lowest point since August 1999, when prices reached 14-year lows. ISA prices averaged 6.79 US cents per pound from July through October 2002; prices are moving downward in 2003 during the same period (July through October), averaging 6.43 US cents per pound. ISA monthly prices averaged 8.64 US cents per pound in 2001 and 6.89 US cents per pound in 2002. The considerable global surplus at the end of this year may result in a further price erosion that could attain the low prices levels of 1999 when the ISA average annual price declined to 6.27 US cents per pound.

Economic-growth-spurred consumption may not immediately alleviate global stock situation


FAO forecasts that world sugar consumption will reach 139.1 million tonnes in 2003, an annual growth rate of 2.5 percent driven by stronger-than-anticipated economic growth, notably in the Near and Far East. Consumption growth is expected to remain strong in the Far East, reaching a forecast growth rate of 3.6 percent in 2003, given annual GDP growth exceeding 5 percent and population growth rate of around 1.5 percent for the region. Growth in consumption in the Near East may also exceed 3.5 percent, while a slight decline in growth rate is forecast for Latin America and the Caribbean. Overall growth in the developing countries is forecast at 3.3 percent in 2003. Among the developed countries, the growth rate is estimated at 1.5 percent, slightly higher than in recent years, mainly as a result of stronger consumption growth in the CIS, particularly the Russian Federation where the food-processing industry continues to expand significantly. However, given depressed internal prices in that country, this growth may not necessarily translate into short-term market support for increased imports, particularly with increased domestic sugar output. Further declines in consumption growth were estimated for the United States, as the impact of low-carbohydrate diet trends in food manufacturing and the continued move of sugar-containing product manufacturers to Canada or Mexico continues to further depress growth in consumption.

Reports of potential purchases by countries in the Middle East may lend some short-term support to sugar prices. However, low world prices have failed to induce purchases by China or the Russian Federation, even though both nations have substantially greater domestic output than was originally anticipated earlier this year. Furthermore, any market support derived from short-term purchases will be limited, at best. Reports indicate that China will not fulfill the announced 1.76 million tonne tariff rate import quota, as the price differential between domestic and international sugar prices remains too low to attract import volumes, and this will most likely remain the case for the new marketing year as well. Furthermore, the sugar industry in the Russian Federation continues to lobby for a smaller tariff rate import quota in response to increased domestic output. Thus, despite both short-term possibilities for purchases and EU sugar quota cuts on production that could slightly restrain the refined sugar market for that region, the estimated year-end supply/demand balance for 2002/03 indicates that the world market may be facing the same serious disequilibrium experienced in 1999, when world prices fluctuated between 5 to 6 US cents per lb.

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