NEW YORK: A large global sugar surplus in 2017-18 will cap prices in the first half of 2018, but the expectation that mills in top grower Brazil will reduce the amount of cane they turn into the sweetener could boost prices later in 2018, Citi Research said.
In its Annual Commodities Market Outlook 2018 note on Sunday, Citi forecast a 6.7 million tonne sugar surplus in 2017-18 and a 400,000 tonne surplus in 2018-19. As a result, raw sugar would price at 15 cents per lb in the first quarter of calendar 2018 and 16 cents per lb in the second quarter.
It called for prices to rise to 17 cents per lb in the second half of the year.
On Monday, spot sugar prices settled up 0.5 percent at 15.06 cents per lb.
"We expect the sugar mix in (Center-South) Brazil to fall to 44 percent next year, with downside risks should current sugar/ethanol spreads persist," Citi said.
"We expect only a modest surplus in 2018-19, which should support prices through (second half) 2018 and 2019, though falling crude prices during 2019-20 may damp relative price cheer."
For coffee, Citi pegged global production at 152.5 million bags in 2017-18, down from 153.9 million bags in 2016-17.
"Without taking growth in the rest of the world into account, as long as weather cooperates in Brazil, the world could potentially see a pause from the five-year-long coffee deficit cycle and with near perfect weather, we could even potentially see global balances lifted to surplus," Citi said.
Global 2017-18 coffee exports were seen falling to 116.6 million bags, a three-year low, while total ending stocks were forecast at 90.9 million bags, a five-year low.
ICE arabica futures prices were forecast to rise to $1.34 per lb in the first quarter of 2018.
For cocoa, Citi forecast a large 2016-17 supply surplus swinging closer to a balance in 2017-18 because of lower production in West Africa and improved grindings. New York cocoa prices were seen rising to an average $2,150 per tonne in calendar 2018.
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