Overview and General forecast of the Sugarcane market in Vietnam and the World Sugarcane market Perfect competitive

market is just an idealistic model, but in the limit of this presentation, in order to find out how to optimize profit when take part in international sugarcane market. We assume that this market is a perfect competitive one, with many buyers and many sellers. First, we have an overview of perfect competitive market: I. Definition of a perfect competitive market Perfect competition is competing in an economical model which was described as being an idealistic market economy model, there is not any producer or consumer who haves rights or ability to control the market or make influence to prices. Perfect competition was thought to bring back high effection to the economy. Researches about perfect competitive markets provided bases for Supply and Demand Theory. II. Basic characteristics of perfect competitive market: - There are many buyers and many sellers who are independent of each other. - All exchanged goods are considered as the same. It means that they have same quality and quantity levels. All goods sold are not differ in specification, quality, model, or in other words, all kinds of good have completely substitution abilities. Buyers do not have to care who sold the good for them. - All buyers and sellers have enough information about purchasing or exchanging. - There is no barrier to a buyer/sellers taking part in market or retreating from it. - Perfect competitive enterprises and consumers accept a common price is a market price. - Perfect competitive enterprises could sell all their goods at the market price. If not, they could not sell any good. - Perfect competitive enterprises have no market power, no ability to control prices. - Demand curve of perfect competitive enterprise is always horizontal.

III.

An overview about Vietnam sugar Industry and the situation in 2009 2010

1. Vietnam sugar industry

Sugarcane and serving as the sugar appeared many years ago, but sugar industry was just built since 20th century. In 1994, there were only 9 sugar factories in Vietnam, with total capacity about 11.000 tons sugarcane per day and two low-capacity refined sugar factories, with backward equipments and technology.

Now Vietnam has about 40 sugar factories, there are 35 ones of them are national companies and 5 ones are foreign investment. There are 9 factories reached high

profits and were remained, such as: Lam Son sugar joint-stock company, Bourbon Tay Ninh joint- stock company, Bien Hoa joint- stock company Domestic demand is about 1,4-1,5 billion tons while total sugar capacity is about 1 billion tons per year. So, Vietnam has to import about 400 thousand tons from Thailand, in both legal and illegal ways. There are three main products of sugar in Vietnam market Refined sugar Raw sugar White sugar

Crops of sugar companies often start from November and spend about five months. Factories just maximize their capacity in this time. The rest amount of sugar will be preserved in warehouses in order to meet demands of the market. So that, inventory cost of sugar industry is always high and performance of factory is bad. Now, the disadvantage of the production cost of the selling price of domestic sugar trade higher than world sugar and the sugar industry so it is in quite strong state protection of government .. But since 2010, import duties as committed CEPT / AFTA is adjusted from 10% to 5%, while import quotas will be gradually removed under WTO commitments will bring huge risks for the sugar industry in Vietnam.

500 400 300

15,044

Din tch - sn lng ca ma Vit Nam

17,120 14,657 16,855 16,720 15,649 14,949 17,397 16,128

20,000

15,000

10,000 200 100 0 2000 2001 2002 2003 2004 2005 2006 2007 s b 2008
302.3 290.7 320 313.2 286.1 266.3 288.1 293.4 271.1

5,000

Sn lng(nghn tn)

Sn lng(nghn tn)

C ng sut mt s cng ty ng ( tn ma/ngy)

Bi n Ha KCP Ca m ra nh La m Sn Bourbon T y Ninh Ngh An T&L 4,500 5,000 6,000 7,000 8,000 9,000

2.Situation of sugarcane for 2009-2010 Sugar Department 2009 - 2010 ended with bleak statistics, the total sugar output reached 904,000 tons, down 5,000 tons from the previous crop year, the rate of promotion of the processing capacity of the plants reached only 61.2 % compared with the design. Right from the beginning of the crop, sugar industry has planed to expand the area of sugarcane, expected to grow 12,620 hectares (6%) compared with the previous season. However, the opposite is the area of sugarcane area at the end of crop of the country reached 265,136 ha, down from 5,464 hectares last year. Sugarcane acreage reduction mainly concentrated material areas of the plant, is only 242,413 ha, down 5,307 hectares. Statistics show the average annual yield in recent years an average 60 tons / ha. However, as reported by the plants on the basis of the total area harvested and yield of sugarcane purchased, the material yield average actual crop year 2009-2010 was only 51.7 tons / ha.
Total production of sugar cane mills is purchased 9,747,800 tons, can meet only 61.2% total design capacity of the plant. In 40 sugar mills: only 2 plants have enough raw materials; 13 plants operating below 50% capacity, even individual Tuyen Quang company only ways to achieve 21% power; sugar Company of Vietnam only 15.5% of capacity. In three years, the company has invested a total lifting capacity of 86,500 tons of cane per day to 105,700 tons of cane per day, but the area of sugar cane, cane yield and increasing production leads to falling raw material shortage fierce. But the real target was achieved this year: an area of 265,000 hectares of sugar cane (11.7% lower than planned), the average yield 51.7 tons per hectare (less than 20.5%); total production reached 13.7 million tons of sugarcane (29.7% lower), total sugar industry reached 904 thousand tons only (less than 35.4%), lack of about 300 thousand tons compared with demand used. Meanwhile, separate the total design capacity of sugar mills back to 7% over the plan, has caused great waste of materials. IV. Profit maximization for Vietnam as a participant of World Sugar Cane market 1. Basic Supply and Demand analysis and psychology analysis to prove the cycle of sugar cane production To prepare for this presentation, we have downloaded the data of Sugar Cane Production and Planting Size in Vietnam since 1995 from General Statistics Office and drawn the following charts. This is the chart of Sugarcane Production in Vietnam from 1995 to 2009.

Year Production 1995 10711.1 1996 11430.3 1997 11920.9 1998 13843.5 1999 17760.3 2000 15044.3 2001 14656.9 2002 17120.0 2003 16854.7 2004 15649.3 2005 14948.7 2006 16719.5 2007 17396.7 2008 16145.5 2009 15246.4 Source: General Statistics Office of Vietnam And this is the chart of Sugarcane Planting Area in Vietnam, also from 1995 2009.

Planting Year Area 1995 224.8 1996 237.0 1997 257.0 1998 283.0 1999 344.2 2000 302.3 2001 290.7 2002 320.0 2003 313.2 2004 286.1 2005 266.3 2006 288.1 2007 293.4 2008 270.7 2009 260.1 Source: General Statistics Office of Vietnam Now, why do we bring these two charts? First of all, in this case, we consider Vietnam as a single participant joining the world market. In this case, we have to bring the chart of Sugarcane Production in Vietnam, because it refers to the quantity supply of Vietnam. Second, we use the chart of Sugarcane Planting Area in Vietnam as an indicator. Sugarcane Planting Area is one of a few visible indicators we have for the sugarcane market. Therefore, it is accepted that Sugarcane Planting Area is one of the most significant input factors which determine the quantity supply.

If you look at these 2 charts of 15 years period from 1995 to 2009, you will see they have the similar patterns. And we have found an interesting cycle of 2 years for major turns in Sugacane Planting Area in Vietnam.

Why does this cycle exist? It is due to the change in farmers psychology along the time. For example, we are at a peek of the 2 year cycle, this season most of farmers choose to plant sugar cane because last year they had a great season, they have sold most of their products at a good price or simply the weather supported them in the previous season. But after this season, because a lot of farmers decided to plant sugar cane, the price falls. The farmers think, oh this is bad, I dont want to plant sugar cane the next season. And the next season, they exit the sugar cane market. Then the planting size starts to fall. 2 years later, the sugar price strikes again and the farmers begin to think, oh this is good, price is increasing, we will choose to plant sugar cane in the next season. And the planting size increases again. This is the visual supply and demand curves figure for the Sugar cane market:

When farmers think that there is a chance, they want to produce, the supply curve is shifted to the right, from S1 to S2 and the quantity supply increases. When they dont want to produce any more, the supply curve is shifted back from S2 to S1 or some S3 on the left, and the quantity supply decreases. 2. Technical analysis for the sugar cane market in short term Ok, we have done a simple analysis of the market to prove the cycle of Sugar cane Planting Area in Vietnam. Now, lets go back to the chart of Production. As the 2 charts have the similar patterns, assume that the cycle of farmers psychology will continue to work out, we can expect the quantity produce of Vietnam to reverse and go up to above 17 million tons again after the season of 2011. Of course, we have to wait until the statistical results of 2010 released. If the results of 2010 fell below the lower trend line resistance, we would then expect the downward trend in the quantity produce of Vietnam through out the year of 2011.

Lets look at the short term price chart of NYMEX in the period of 2 recent years until now. We can see that we are currently in a strong upward trend.

If we take a daily Sugar price chart like this and do some analysis,

We are now at 32.84 I have drawn 2 pitchforks colored with blue and orange for us to see the 2 possible channels right now. They are all showing that we are in a strong up trend. But recently, we had a break below the blue channel, means that in the next few weeks it may not remain so strong like it was before the end of October 2010. As it has sharply declined, the new channel in orange is showing a new path of price increasement. Those 2 channels are both pointing to a possible target at $35.2 I have also drawn some trend lines so we can all see the possible support and resistance levels. The 2 resistance levels are $33.3 and $34.6 Price may test these levels for several times before go up more. Any failure to break a resistance or falling below a support level may signal a slow down or reversal of this strong up trend. But in the mean time, we have some reasons to believe that price is still going up, then it would be good to open the gate and export more.