8. Februar 2021

EU Sugar Market Update

In this article, we will look into developments in the European sugar market since our latest newsletter sent out during November. How did the fundamentals develop and what are the expectations for coming season? We need to speak about revised sugar production, yellow virus, consumption impact by Covid 19, and Brexit.

After the Corona shock in spring last year, sugar prices on the world market have recovered in recent months and closed the year at 344 Euro per ton. A further upside development happened during January 2021. The EU sugar market has responded to the situation on the world market in recent months with a relative stable price level. The spot markets however, have meanwhile reacted and are trading at levels partly well above 400 €/to EXW across the continent. Driving factor has been the once more disappointing crop in Europe. For sugar production in 2020/21, the EU Commission lowered its own November forecast in December and now only expects production of 15.6 million tons (EU+UK). 

The drop is a consequence of a reduced acreage (down by 3.3%) and lower yield of some 6.5% resulting in an overall reduction of beet sugar production across Europe by almost 10%. The yellow virus transmitted by aphids has spread massively in some beet-growing regions of Europe in 2020 and has led in some cases to considerable yield losses of up to 30 percent. As no comparably effective plant protection products are available at this stage and a repetition has to be avoided for next year, further EU member states have issued derogation approvals for beet seed treated with a neonicotinoid active ingredient for sugar beet cultivation in 2021. However, it is only permitted subject to conditions. The conditions include, among others, that no flowering (intermediate) fruits may be present on the respective sowing area in the same year and in the following year. It is also not permitted to sow treated seed in the outermost row of the field to be cultivated.

It remains uncertain what effect a drop in demand due to the Corona pandemic and the ongoing lockdowns in Europe will have. We in line with other analysts see the impact on a 12 month basis on a level of up to 800 kto in the food & beverage industry. The Corona pandemic and the lower beet harvest in some member states show once again that we are dealing with very volatile markets in sugar. However and without a doubt ending stock for the current sugar market year will be reduced significantly to critical level. And here we have taken imports on a level of 1.9 million tons. As a recap, this is the number widely used to describe the limit on duty free imports. Anything on top would need to pay the full CXL duty.

Worth to mention is also that the trade agreement between EU and the UK that was put in place late December has removed all worries about duties between the two countries. The agreement stipulates that goods originating in either the UK or the EU can cross the borders without any duty as long as the formal custom procedures are fulfilled. Goods originating from third countries are subject to import duties, even if both blocs have trade agreements with the country in question. For sugar, this basically means that beet sugar can be moved across borders without import duty while cane sugar imported and refined inside the EU or the UK is subject to duties.