European sugar producer Südzucker has announced beet reductions of between 15 and 25% from their farmers and subsidiaries, a far more radical approach than their competitors. If Südzucker was expecting others to follow suit, this will prove disappointing as other producers have been more nuanced with their calls for reductions of around 10%.

The divergence in production strategies is becoming apparent as harvest season concludes across Northern Europe. While some producers are cutting planned area modestly, Südzucker’s decisive move stands out as significantly more aggressive.

Tereos maintains contractual area despite crop overshoot

Tereos announced a beet price of €32.53 per tonne for next year while keeping their contractual area unchanged. This comes after receiving 13% more beet than the contractual area this season due to weather conditions. On this excess tonnage, farmers will receive between €17.50 and €18.50 per tonne.

The fact that there was an overshoot of 13% in planned production, even allowing for the reported 3.7% drop in area, is testament to just how good the crop has been. Current estimates are most probably on the conservative end of the scale.

The Tereos beet price breakdown consists of a provisional price of €28.13 per tonne, the contract fulfilment scheme of €0.50 per tonne, campaign bonuses and allowances of €0.82 per tonne, the sugar content bonus of €0.65 per tonne, and the diversification and interest on shares of €2.43 per tonne.

It underlines that farmers can be entrepreneurial in their decision making in the hope that higher sugar prices will translate to higher out of contract beet prices. The market now waits to see what Crystal Union decides to do.

Discord between producers likely next year

It is reasonable to expect that Tereos farmers will in any case plant less based on the beet price on offer. However, this will raise the prospect of discord between producers next year.

Should cutting area by upwards of 15% result in much higher sugar prices, then the accusation would be that Südzucker is taking a higher share of the pain than their peers who will profit more if prices rally significantly, even with Südzucker holding an approximate 20% market share.

Late production cuts create seed supply complications

The late initiative by producers to cut production is having an impact on seed manufacturers. Before the announcements, most seed had been ordered, and shelf life for beet seed is barely 12 months.

There is the prospect of farmers planting more out of contract beet, or to add another cost to the industry, compensation to the beet seed manufacturers for cancelled orders.

Market pricing continues downward

Prices have fallen back once again as the size of the crop and limited sales continues to weigh on the market. Ex-works basis bulk beet belt is quoted at €420 per tonne, North Italy at €500 per tonne DDP and UK £515 DDP basis.

Tereos published their latest first half year results. Given falling EU and world markets, the results were not good and were already expected to a degree. European sugar and co-products adjusted EBITDA fell from €193 million to negative €3 million. This will not be the end of poor reporting results for European companies.

For Tereos, the situation is more difficult than most given the high levels of debt, which require strong world and EU markets.

This newsarticle is part of a more comprehensive market analysis. For the full analysis, visit: https://app.vespertool.com/market-analysis/2487