Q&A: Peter Baron, International Sugar Organisation

By -
'Sugar output may remain in line with projections'
Jitendra Kumar Gupta / Mumbai


http://www.business-standard.com/india/news/qa-peter-baron-international-sugar-organisation/424733/


International sugar is trading at a 30-year high due to several supply-side issues. To understand the sector’s global and domestic concerns, Jitendra Kumar Gupta spoke with Peter Baron, executive director, International Sugar Organisation (ISO), which closely tracks global developments pertaining to the industry
Sugar prices rose to a 30-year high in New York, led by worries over a cyclone in Australia, the third-largest exporter. Also, India may not export sugar, contrary to what was expected. In this light, what is your view of the global supply and demand for this and the next season?
Fundamentals remain tight. ISO plans to release its second revision of the world sugar balance estimates for 2010-11 by the end of February. Preliminary figures show a further reduction in the global statistical surplus, which was initially forecast at 3.2 million tonnes (mt), but revised to 1.3 mt in late November. Moreover, the picture for 2011-12 remains uncertain (although in 2011-12 there are chances of a modest global surplus of up to two mt) and global stocks are low.

What are the possible triggers or events you will keep an eye on in the next 12 months?
There is a long list of sugar and non-sugar specific factors that are likely to impact the world market price dynamics in 2011. These include (without any specific order) -- prospects of Brazil’s crop and sugar/ethanol ratio, crude oil prices, currency exchange rates, the size of India’s crop in 2010-11 and monsoons, the size of the next beet harvest in Russia, the US-GM beet ruling, Europe’s price attractiveness, China’s sugar consumption and demand, La Nina weather phenomenon, demand response in price-sensitive countries to high prices, the size of the crop in Thailand, the supply response of smaller sugar producers, particularly, in Africa and Western hemisphere, to high world prices, funds’ activity in sugar futures market and the outlook of the commodity markets in general.


India has come from being sugar deficit to a surplus situation, which was at one time equal to the global deficit. Could we soon see start of a new cycle that will typically be characterized by falling cane prices followed by a fall in sugarcane production?
Lack of alignment between cane and sugar prices under the existing regulatory framework is expected to maintain the cyclicality of output. So far, there is no clear evidence of falling cane prices and growing millers’ arrears to growers. Additional revenues for millers from expected large-scale exports may further improve their cash flows, preventing a significant build-up of arrears to growers. This allows us to suggest, subject to normal weather conditions (i.e. an adequate monsoon in the middle of 2011), that sugar output this year may remain in line with expectations.
What are your estimates for sugar production in India for the current and the next sugar season? For the time being, ISO maintains its previous forecast for sugar production in India at about 25.5 mt in 2010-11. While India has pulled back its export plans, will this help Indian sugar companies that are already reporting losses? If India does not export, how will this impact global supplies?
The decision to postpone OGL (open general licence) exports has supported and is expected to maintain support to world prices in the near future. However, from April onwards, the market dynamics will likely be more dependent on Brazilian rather than Indian developments.
If crude oil remains over $100 for the rest of the year, do you think the ethanol market could see better days? And, in this backdrop, will you change your global sugar supply estimates for the next year?
A revival of ethanol exports by Brazil can be anticipated, but it is too early to make any firm assumption.
India still has a very low per capita consumption of sugar compared to some other countries of the world. Could you comment on this? And what does your experience of the developed world say on how and when this could change?
Indeed, although India is the world’s largest sugar consumer, in terms of per capita consumption, India’s figure (20.6 kg raw value in 2009) remains 15 per cent lower than the world average. However, if jaggery is added, its per capita consumption is similar to the world average.

Comments

Post a Comment

Popular posts from this blog

Market Euphoria: Too Happy for Too Long

By -
Image
T he  other day, I was talking to a friend who asked me about the direction of markets and what could happen post-Budget. Not that I was interested in predicting specific levels, I said, "if people are too happy for too long, that itself is the biggest risk." As it goes on, keeping people happy for too long, can turn into a national disaster, much like other disasters where ultimately the government is blamed.                                                    The Dangers of Overconfidence Among the investing legends, I have lot of liking for Howard Marks and his insights about human behaviour, market cycles and many other things like second order thinking and going against the crowd.  In his recent memo he writes (Mo st interesting lines in my view), The adage "success is a dangerous neighbour" is particularly relevant in investing. When individuals achieve financial success, they often attribute it to superior skill and knowledge. This overconfi dence can lead to
Read more

Knowledge Compounding: Why it is better to be foolish at the start than at the finish

By -
Image
  W e are probably at the fourth stage of the market where being in the quality stocks is curse, they are no longer producing returns because they are fully discovered. Investors are now bidding for low quality, unloved, undiscovered stocks. This marks the phase of the market where investors begin to compromise on quality and the fundamental principles of investing in favor of chasing the next big stock.     They start disregarding quality in pursuit of higher returns. This herd mentality leads to a strong bullish phase in low-quality stocks. Novice investors, or so-called alpha-riders, become the new authorities in the market.   This reminds me about the wisdom that Vijay Kedia shared with us few years back, “In good times everything looks rosy particularly for the first-time investors who have not seen the market cycles and hence beat the drums. Bull markets produce many self-claimed genius or stock pickers but in reality, the real stock market genius are bornin the bear
Read more

Knowledge Compounding: Wow! I found my next multi-bagger stock.

By -
Image
R eading about a company, I was thrilled to discover its immense potential for growth. The business boasted a strategic position, a vast pool of opportunity, a reputable promoter, significant capital injection, and a doubling of production capacity – all the makings of a winner. Wow! I found my next multi-bagger.                                               But hold on! Examining the share price and valuation quickly deflated my enthusiasm. Isn't this a common occurrence these days? There's an overemphasis on the "top-down" approach, with little regard for the actual price.   This relentless pursuit of the next big idea, sector, or company has eroded the valuable investing principles we learned from Benjamin Graham and Warren Buffett.   It's a growth frenzy, but where's the margin of safety? Everything is validated in the name of growth and the current political and economic climate, as if there's no possibility of things going wrong.   Howev
Read more