Not so sweet: El Nino eats into Sugar production after 5 years of surplus

In collaboration with Revathi Udayashankar, Research Analyst - Agro

The strongest El Nino in nearly 20 years has affected sugarcane production. El Nino led to excessive rains in Brazil, and drought in India and Thailand – traditional sugarcane producing regions. After experiencing five years of surplus, the El Nino induced weather condition is expected to result in production shortfall in 2015/16 (current) and 2016/17 (next season) .

The El Nino weather phenomenon forms every two to seven years and is known to disrupt normal weather patterns in Asia-Pacific and Latin America regions

El Nino, a warming of the surface of the tropical Pacific Ocean that can trigger downpours or droughts around the globe, has been worrying agro producers and consumers alike ever since news was out that the phenomenon would be strong this crop year.

The two most populated regions in the world to be affected by El Nino (means “The boy” in Spanish) are India and Brazil; and to some extent the United States.

The expected production shortage is reflecting in the futures market: During February, ICE #11 price averaged 13.31 U.S. cents/ pound, compared to 10.67 U.S. cents/pound in August 2015.

Brazil Sugar industry

Rains in Brazil had interrupted cane harvest and also reduced the sucrose content. During May 2015, sugarcane processing was 26% less than a year earlier due to wet weather condition. Sugar production and Ethanol production fell 36% and 22% respectively, against the same period previous year.  In addition to unfavorable weather pattern, sugarcane is being diverted to ethanol production, further decreasing the sugar output.

In 2015/16, Central South region’s sugar output fell by 7% when compared to previous year.  Exports was also lesser than the previous year due to lack of availability of exportable sugar in the country.  Also, economic slowdown has pulled down the sugar demand for industrial applications.

Indian Sugar Industry

Maharashtra, the main sugarcane growing region in India, is severely affected by the dry weather pattern brought about by El Nino. Also, with growing burden of debts, farmers were not incentivized enough to plant cane in large numbers.

Since sugarcane is a water intensive crop, planted area of sugarcane fell by 22,367 hectares due to water scarcity. The expected yield in the state is about 887 million tons.  Similarly, in neighboring Karnataka, the drought condition has decreased sugar productivity. Owing to this situation, sugar mills are crushing half-grown crops.

In 2014/15, Karnataka has crushed 45 million tons of sugarcane with average sugar yield of 11%. For 2016/17, sugarcane availability is expected to decrease by 30% from the current scenario.

Thailand Sugar Industry

Similarly, drought in Thailand during 2014 has reduced the summer rainfall by 20% as compared to the previous year. As a result of dry weather pattern, the reservoir level fell by 30-40%.  During 2014/15, Thailand crushed 105.6 million tons of sugarcane, but due to water shortage, in 2015/16, it is expected to crush less and produce about 11.34 million tons.

Reduction in exports from Thailand

The world’s second largest exporter is expected to reduce its sugar exports by 20% from previous year because of increased domestic consumption and expected decrease in the sugar output. Thailand’s sugar production is estimated to reach 10 million tons in 2015/16, a 14% decrease from 2014/15.

Increase in Sugar output in Brazil

Sugar output is estimated to increase in 2016/17, due to expected increase in sugarcane production, as acres and acres of sugarcane were left unharvested in the fields due to excessive rains.  Increase in sugar production by about 3 million tons can be seen in Central-South region of the country.

Decrease in Sugar output in India

Indian sugar production will fall by 1 million tons in 2015/16 due to dry weather condition.  Production for this crop year is estimated to reach 24.5 million tons and below 23 million tons during 2016/17. Imports of sugar can also be expected in 2016/17, in contrast to mandatory export policy this MY.

Price of global Sugar

Global sugar price will spike due to drought and above normal rains in major sugar producing regions. In addition, Brazil’s ethanol production will further increase the price of sugar. In the present season, raw sugar price can reach a maximum of 16.5 U.S. cents/ from current levels of 13-13.5 U.S. cents/pound.

Global sugar industry in 2015/16

Global sugar production is estimated to fall 4.3% in the present marketing year against 2014/15 — increasing the gap between global supply and consumption.  Sugar production is expected to fall further in 2016/17, as the current dry weather will affect the production and yield.