- France to achieve record crop of 5.53 million mtwv on bullish expansion plans

- Rejuvenated UK beet sector to produce 1.36 million mtwv, up 40% year on year

- No uniform solution to beet supply contract leaves question marks over future growth

LONDON, Dec. 2, 2016 /PRNewswire/ -- The EU will produce 18.32 million mtwv (metric tons white value) of sugar in the 2017-18 (October-September) season, up 10% or some 1.7 million mtwv on the current crop year, according to S&P Global Platts.

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France and the UK are at the vanguard of the surge in production in our opening estimate for the first harvest after the abolition of quotas, accounting for 70% of the overall increase. Germany, Italy, Netherlands and Spain are also expected to raise output by a combined 350,000 mtwv.

Production for Metropolitan France is estimated at 5.53 million mtwv, up 795,500 mtwv year on year, as an overwhelmingly bullish pricing environment for beet supports expansion in acreage of 15%. This would be a record volume for France, where producers have been unashamedly bullish in their plans to take full advantage of liberalization and use existing capacity to boost production and increase exports. After reducing output in 2016-17 to draw down stocks, UK production is expected to return to more normal levels. We estimate acreage rising some 33% to around 100,000 hectares and a yield of 13.50 mt/ha. This would see production surge by almost 40% to 1.36 million mtwv. In Germany, production is estimated at 3.98 million mtwv, up 3.6% or 138,000 mtwv on the year, reflecting a slower pace of expansion.

Collective bargaining powers enacted by the European Commission provide a basis for the EU's 145,000 beet growers to establish new contractual terms with producers, but negotiations to ensure stable production for more than 2.5 million mtwv of sugar remain fraught with difficulty. Beet supply deals agreed in France, Germany and the UK have largely been well received, enabling some 60,000 growers to join producers' expansion plans. But negotiations have reached deadlock in Poland and Belgium, leaving their aspirations to increase market share in the short term in tatters.

No longer able to rely on the contractual certainty of a guaranteed minimum, such contrasts are the new reality in the post-quota regime, senior sugar analyst David Elward said.

"It seems private owners have tended to find it harder than cooperatives to whet the appetite of growers. A one-size fits all policy in the mold of the current minimum pricing system has not been well received by all, and there is some resentment private owners are taking advantage since alternative crops offer worse returns," he added.

Planting will not begin for three to four months, so there remains time for deals to be struck. "Independent growers are flexing their muscles and holding out for a better deal. Failure to reach agreement would pose serious question over the future viability of the beet sector in certain countries," Elward said.

CONSUMPTION
Just as the EU edges closer to the implementation of supply-side reforms motivated by lighter-touch regulation, on the demand side support is building for a more interventionist approach, e.g. the taxes on sugar proposed in Finland and the UK. Investments in alternative sweeteners continue apace, and persistently high refined sugar prices might also encourage food and drinks manufacturers to seek cheaper alternatives.

Against this backdrop our estimate for consumption of refined white sugar is unchanged at 16.75 million mt. Combined industrial use and sugars used in the manufacture of products for exports is unchanged at 2.205 million mt.

Isoglucose joins sugar in a post-quota world and with new plants being built there will be a steady increase in production. For the initial year, we estimate an increase of 300,000 mtwv to 1 million mtwv. Sugar used as an ethanol feedstock is estimated lower by 300,000 mt to one million mt, as current forward pricing suggest other crops are obvious cheaper alternatives. Producers with a surplus will also seek to capitalize on higher prices for sugar in the world market.

TRADE FLOW BALANCE
Imports will fall and exports will rise. So goes the conventional wisdom on the development of trade flows post-2017. We agree with this interpretation of events, but with two provisos: the ultimate EU sugar production number and the pricing environment both globally and domestically. Our 2017-18 production forecast is based on eminently achievable growth of 10% -- assuming no extreme weather. But entering next season with low stocks and some participants champing at the bit to export, we still see the region dependent on imports of as much as 3 million mtwv. We are currently estimating exports of 2.4 million mtwv, an increase of some 1 million mtwv on the year. A competitive international whites market and high EU domestic prices could deter exports. On the flip side, high logistical costs to truck sugar across the continent or lower domestic prices if higher-than-expected production is realized might be supportive of exports.

    EU SUGAR PRODUCTION ESTIMATE 2017-18 SEASON (000 MTWV)
    -----------------------------------------------------

    (Oct-Sep basis)                                        2017-18           2016-17           % Change

    France (Met)                                                    5,531.50          4,736.00          16.80

    Germany                                                         3,980.74          3,843.00           3.58

    Poland                                                          1,939.75          1,948.80          -0.46

    UK                                                              1,362.69            976.60          39.53

    Netherlands                                                       923.35            850.60           8.55

    EU28                                                           18,318.36         16,625.40          10.18

    Source: S&P Global Platts

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SOURCE: S&P Global Platts