EU: Higher wheat prices key to farmers leaving beet behind
Published: 04/26/2018, 8:07:25 AM
As Europe's farmers plant their first beet crop completely free of the constraints of more than four-decades of production quotas, the world market is hoping they'll decide to use their built in flexibility to plant less beet instead of more, reports Sugaronline.
Martin Todd, Managing Director of LMC told the 8th Platts Kingsman Geneva Sugar Conference on Wednesday that with India's record sugar production and Brazil's limited capacity to divert sugarcane to ethanol, Europe and Thailand are the only two origins that really have the flexibility to switch crops when sugar prices are below the cost of production.
The European Commission and much of the trade agree that 2017/18 European sugar exports are likely to be around 3 million metric tonnes, with about 400,000 tonnes exported per month so far since quotas ended in October.
ICE raw sugar prices fell to fresh 2.5-year lows on Wednesday on the back of ever-growing production in India that is now seen at more than 31 million tonnes this season while next season could see production of 32 million tonnes, or more, according to the Indian Sugar Exim Corp.
"Only Brazilian mills and EU beet are cash positive but they are motivated to continue to produce sugar," Alvean CEO Gareth Griffins told conference attendees on Tuesday. "Brazil will still produce sugar because there's money in it."
European producers, on the other hand, may begin looking at wheat as an alternative crop with better returns than sugar, although that crop shift isn't likely until 2019/20 at the earliest, Marex Spectron's Robin Show said Tuesday.
"An intelligent farmer, if he had to make a decision today, would likely choose wheat over beet as it will give a slightly better return," said Shaw. "Europe's greatest weapon it has up its sleeve is its ability to vary its production based on price."
But he warned that if European farmers don't take the decision to reduce beet area next season, then the world market is going to take that decision for them, "and push prices down until we have no choice."
Sugar beet is typically part of a three or four-year rotation in Europe, Michael Sly, a sugar beet grower and chairman of NFU Sugar, told the Geneva conference.
"For us, the relative attractiveness of crops is critical, and rotations are often about maximising returns from wheat," he said, although with the UK on track to leave the European by the end of March 2019, British sugar's impact on the world market may soon take on a whole new meaning.