Data on China from the perspective of the USDA’s second biannual report, even coming from a succinct comment from the Department, point to a sharp decline in beginning stocks, followed by a very moderate advance in production, which again must not neutralize the need for increased imports by the country, in a move that is largely supported by stability in domestic demand, which in essence stems from China’s current slowdown in its GDP within the “new normal” concept of economic growth in the country.
USDA points out the growth of the Chinese production for four seasons in a row. This factor is only a psychological rather than a statistical argument, as the beginning of the upward movement occurred in the 2017/18 season, with a supply of 10.3 million tons and now culminating with the second estimate for the 2019/20 crop at 10.89 million tons, accumulating a 5.73% increase in sugar volume.
Even though the balance between the country’s supply and demand has decreased its deficit from 5.04 to 4.91 million tons, this does not mean there will be less sugar during the season. The 2019/20 season is already starting with a reduction of 2.06 million tons in beginning stocks, partially offset by the increase of 130 thousand tons in domestic production. However, imports must show a new cut of 100 thousand tons, which reinforces the pressure on final stocks of the season, which must fall 1.08 million tons. In this sense, as domestic demand must remain stable, the stocks/use ratio must end up decreasing by 6.84%.
One of the vectors that could change these estimates from USDA over the course of 2020 is the accelerated start of the US sugar production due to the earlier than normal start of operations of 86 sugar mills, which raised production in November to 873 thousand tons from 425 thousand at the same time last year. This may cause the crop to be completed earlier in 2020 or production to get even higher than initially expected by USDA. Interestingly, the latest estimate from the China Sugar Association points to an output of 10.5 million tons, down 2.4% from the previous estimate of 10.76 million tons, with a forecast of area of 20.84 million hectares, down 1,389 hectares from the previous season, basically pointing the opposite way to that indicated by USDA.
Back to the USDA’s report and looking more closely, production is estimated at 10.89 million in the 2019/20 season, which accounts for a 1.21% growth, or 130 thousand tons, over the volume of the 2018/19 international crop of 10.76 million tons. From the perspective of the previous report from USDA, in May this year, we see a 1.78% increase in production volume compared to the previously estimate of 10.70 million tons, which indicates a high of 190 thousand tons between May and November this year.
On the domestic demand side, the figure of 15.80 million tons remained stable between the 2018/19 and 2019/20 seasons and also against this year’s May report. As a result, the balance between supply and demand is likely to show a deficit of 4.91 million tons, indicating a decrease of 2.58% (reduction of 130 thousand tons in the deficit) from the deficit of 5.04 million tons calculated in relation to the 2018/19 season. Looking at the USDA’s May report, we have a 3.73% decline in the deficit from the previously estimated level of 5.10 million tons, which indicates a fall of 190 thousand tons in the deficit between May and November this year.
In the meantime, the final stocks of the 2019/20 crop tend to hit 4.34 million tons, with a decrease of 1.08 million tons between the 2018/19 and 2019/20 seasons, indicating a decrease of 19.90%. Looking at the USDA’s May report, we have a 3.42% decline in the volume of final stocks compared to the previously estimated level of 4.50 million tons, which indicates a decrease of 154 thousand tons between May and November this year. This sharp decline in final stocks due to stability in domestic demand must drive the stocks/use ratio to 27.51%, down 6.84% from the previous crop level of 34.35%. Looking at the USDA’s May report, we see a 0.97% decline in the stocks/use ratio, compared to the previously estimated level of 28.49%. The stocks/use ratio showed the aforementioned decline of 6.84% only because of the 19.90% decrease in final stocks in view of stable domestic demand. As a result, the index between the capacity of final stocks to meet demand moves farther away from the average of 44.89% for the last nine seasons.
Beginning stocks for the 2019/20 season are expected to hit 4.50 million tons, pointing to a 31.46% decline from last season’s 6.56 million tons, which means a decrease of 2.06 million tons. Looking at the USDA’s May report, we see a 17.06% decline in production volume from the previously estimate of 5.42 million tons, which indicates a decline of 926 thousand tons between May and November this year. The largest volume seen up to then for beginning stocks had been 10.39 million tons in the 2015/16 crop. On the import side we see a decline of 2.44% with a demand of 4 million tons, retreating 100 thousand tons from the previous crop of 4.10 million tons. Looking at the USDA’s May report, we have a 6.98% decline in import volume compared to the previously estimate of 4.30 million tons, which indicates a decline of 300 thousand tons between May and November this year, which keeps China as a weak engine of growth in international sugar demand. With a growing domestic production, China tends to reduce its dependence on international sugar, except at times of weather stress.