Date: December 2014
As the beet crushing period comes to end across Europe with the factories coming to close before Christmas/New Year, producers can look back at one of the most successful harvests of beet sugar and beet molasses on record. This has driven the price of beet molasses down, eroding the majority of the recent price premium it has held over cane molasses in recent seasons. The result of this has been a high number of continental feed users using switching to beet molasses for their winter formulas.
Further reducing the demand for cane in the EU region has been the relatively mild weather, and the reluctance of feed producers to reduce the percentage of grains included in their products.
With this seasons sugar cane crush having just started; the sharp decline in oil price has rendered ethanol an expensive alternative fuel. This has lead Pakistan to cut its production and allocate more sugar cane for molasses production/export as ethanol production is no longer the most profitable use of the sugar cane. Causing Pakistan further problems will be ethanol factories have to run at full capacity in order to be cost effective, something that will prove difficult in this coming season.
More will be known regarding exportable quantities and the effect this will have on price when the first parcels are ready for shipment in the New Year, but it is expected to be bearish news.
The crushing season in India has also just started and they are expecting a large sugar cane crop. However most importantly for India is that a stable political situation has allowed for a high potential for export, due logistics and licensing. New cargos will be ready for shipment in the New Year
A drought during the growing in the year has reduced the sugar cane crop to a significantly lower level than last year. However, this does not necessarily mean a reduction in the molasses crop. Last year the cane to molasses yield was exceptionally poor, meaning that if yield levels recover to an average rate then a similar sized molasses crop to last season can be achieved.
Despite the falling oil prices Thailand will press on with its heavily subsided ethanol production as part of the governments Alternative Energy Development plan. The goal of this plan is to dramatically increase the amount of ethanol produced in the country, using sugar cane and tapioca as the stock raw material. It is difficult to predict the effect this will have on long term exportable molasses quantities as the government are also planning on converting land in the north to grow sugar cane in order to feed the process.
Almost all the cargo from last season has now been lifted from the region, and any surpluses have also been exhausted. We are heading into the quite part of the year for molasses production in the region, with a new harvest expected in May/June.
The falling oil price looks set to effect molasses production in Central America, with large parts of ethanol’s sugar cane allocation being moved over to molasses. This should result in larger quantities available for export at an attractive price level, servicing the demand in Europe. New crop will become available for export in January 2015.
Freight levels have increased in recent weeks despite a reduction in bunker costs. Let’s hope this doesn’t cancel out any reductions in the FOB price.
With the oil price falling to $60 / barrel, ethanol is no longer an economically sound option. It is expected that in areas where the government do not heavily subside ethanol production; such as Central America, Pakistan, India; sugar cane previously ring-fenced for ethanol production will be allocated to molasses. This should mean a reduction in FOB prices from these regions. It is expected that Central America will be responsible for imports into the EU, however the EU will have to compete with attractive logistical movements as traders look to plug Asia’s deficit from the same origins.
Despite the bearish outlook in the FOB market, high freight and a weak GBP/USD rate could result in little change seen in CIF UK market.