Sugar may cool off in a few months

International sugar prices, which have risen by about 30 per cent between January and August this year, are projected to remain firm through the 2004-05 season. However, the uptrend in prices is expected to abate in the next few months.

A special report on sugar, brought out by the United Nations Food and Agriculture Organisation (FAO) as part of its global food outlook document, attributes the higher prices to strong growth in consumption, lower output and an anticipated fall in stocks in major sugar producing countries.

The global sugar production in 2003-04 is estimated at 141.1 million tonnes, nearly five per cent short of the previous year's level. This is due largely to lower output in India and China. The world sugar consumption, on the other hand, is projected to rise in 2004-05 by some three per cent to reach 143.1 million tonnes.

As a result, the international sugar prices (the International Sugar Agreement average daily prices) recovered by over 30 per cent to $ 7.8 cents per pound in the first eight months of 2004 calendar year.

"The higher prices are likely to prevail in 2004-05 reflecting continuing growth in world sugar consumption, relative to output, and an anticipated fall in stocks worldwide", the report states.

In the futures market, the May 2005 contracts at the New York Board of Trade averaged $ 8.25 cents per pound (Sugar No. 11), about 22 per cent higher than the same month last year.

"However, this upward trend in raw sugar prices should be interpreted with care as world sugar stocks remain high enough to supplement production shortfalls. Unless further supply shocks occur, prices should stabilise in the next few months", the report cautions.

The sugar production in developing countries in 2003-04 is estimated at 99.5 million tonnes, about five per cent lower than in 2002-03. This is despite a 9.5 per cent increase in output in Latin American and the Caribbean countries. The bulk of the shortfall is accounted for by lower output in India and China.

The dramatic drop in the Indian sugar production to 13.8 million tonnes is attributed by the FAO report to drought in major cane growing regions, including those in Maharashtra and Karnataka.

The sugar output in China is projected to decline by nine per cent to 10.2 million tonnes due to low prices and adverse weather in some cane growing areas. However, consumption continued to outstrip production in China. The Chinese government preferred to meet the demand by releasing stocks rather than imports.

Similarly, Thailand government is limiting cane acreage to deal with the problem of oversupply of sugar in the domestic market. It has also put a moratorium on the support price of cane at 540 baths per tonne.

The revised estimate for sugar output in Brazil for the 2003-04 season is 27 million tonnes, some 15 per cent more than 2002-03 production. However, export supplies in that country is projected to remain moderate because of increased demand for bio-fuel in the wake of higher petroleum prices.

The sugar output in the developed countries is estimated to decline by three per cent in 2003-04 to 41.7 million tonnes. The fall is due mainly to an 8.5 per cent fall in sugar output in the European Union following a reduction in sugarbeet area. The weather, too, had not been favourable.

Australia continues to pass through a worst-ever crisis on the sugar front, exacerbated by the strength of the Australian dollar against the US dollar over the last three years.

In the USA, the sugar output is reported to have increased in 2003-04 to 8.1 million tonnes from 7.7 million tonnes in the previous year.