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Khon Kaen Sugar Industry PCL: Thailand: Agro & Food - USDA’s Nov report—positive on further sugar output cuts

  • USDA’s Nov report—positive on further 2021/22 sugar output cuts

  • Latest UNICA report—a further drop of Brazil’s cane/sugar output

  • Sustained high sugar price; Brazil’s minor 2022/23 output recovery

Bualuang Securities
2 December 2021

USDA slashed the 2021/22 global sugar output by 2% in its Nov report (against its previous May report) to factor in Brazil’s lowered production related to drought and frosts. Together with the recent UNICA’s bi-weekly harvest update report revealing a further drop of Brazil’s cane and sugar output, we consider both developments as good news for the global sugar price. Despite the recent price retreats of global sugar and KSL shares (related to weaker oil price and the emerging risk of new COVID-19 strain Omicron), we think that the sugar supply and demand fundamentals remain solid. Our TRADING BUY on KSL stands, led by sustained high sugar price.

USDA’s Nov report—positive on further 2021/22 sugar output cuts

In its Nov 18 semi-annual Sugar: World Markets and Trade report, USDA revised down its 2021/22 global sugar output forecast by 2.4% from its previous May 2021 report (or by 4.46m to 181.08m tonnes), primarily thanks to the cut in sugar output for Brazil (down 3.92m tonnes), Thailand (down 0.6m), Iran (down 0.35m), China (down 0.3m) and South Africa (down 0.21m). This represented a YoY flattish 2021/22 output against 180.12m tonnes for 2020/21. Drier weather and frosts prompted USDA to cut Brazil’s 2021/22 sugar output. Brazil’s 2021/22 sugar output will fall by 6.1m YoY (to 36m tonnes) which will be offset by gains from India (up 0.9m YoY), Thailand (up 2.4m), Europe and UK (up 1.2m) and others. In terms of global stocks, despite being revised up from its previous May report by 1.68m tonnes, the 2021/22 global stocks will be tighter YoY, evidenced by a YoY drop of 3.1m tonnes. We regard this report as positive led by Brazil’s production cut.