Sugar output is poised to drop for the first time since 2009 as farmers from Mexico to India cut plantings after the biggest two-year price slump since 1999.
Global output will decline to 165 million tonnes (mt) in the 2013-14 marketing year that will start in October in most countries, according to DZ Bank AG, Germany’s largest cooperative lender. Production will be a record 172.3 mt in 2012-13 after three straight expansions, the US Department of Agriculture (USDA) estimates. Raw sugar in New York will rise 8.8 per cent to average 20.5 cents in the fourth quarter, the mean of nine bank estimates compiled by Bloomberg shows.
Farmers are cutting production after futures tumbled 39 per cent in the past two years and dry weather in India, the world’s second-biggest producer, encouraged growers to choose crops that don't need as much water. Global output this year will climb less than one per cent after rising more than five per cent a year in the past three years, USDA data show. Demand will rise 2.1 per cent, while stockpiles at the end of 2012-13 will be 38.3 mt, the most in five years, the data show.
| SUGAR PRICE FORECASTS (In cents a pound) | ||||
| Q1 | Q2 | Q3 | Q4 | |
| Macquarie | 19.0 | 17.5 | 19.0 | 20.0 |
| Commerzbank | 19.0 | 21.0 | 21.0 | 22.0 |
| Rabobank | 19.0 | 19.0 | 18.5 | 18.5 |
| Lloyds | 20.6 | 21.5 | 22.1 | 23.0 |
| Common Wealth Bank | 18.0 | 17.0 | 16.7 | 17.2 |
| Standard Chartered | 22.0 | 21.0 | 23.0 | 23.0 |
| Deutsche Bank | 19.7 | 18.2 | 18.5 | 20.0 |
| DZ Bank | 20.5 | 21.0 | 22.0 | 22.5 |
| Societe Generale | 20.4 | 20.0 | 19.1 | 18.6 |
| Average | 19.8 | 19.6 | 20.0 | 20.5 |
“You will have a normal increase in consumption because of lower prices and in terms of production you will see a decline in some countries because of big carryover stocks,” said Fabienne Pointier, an analyst at Lausanne, Switzerland-based researcher Kingsman SA, owned by McGraw-Hill Cos. “The 2013-14 season is moving toward a more balanced situation.”
Another surplus
Sugar fell 16 per cent last year on ICE Futures US, on forecasts that global production would exceed demand by 6.2 mt in 2012-13, a third consecutive surplus, based on a November estimate by the International Sugar Organisation in London. Sugar was the third-biggest decliner in the Standard & Poor's GSCI gauge of 24 commodities last year. Prices are down another 3.4 per cent this year to 18.84 cents a pound. The analyst estimates were collected before the Kingsman Sugar Conference in Dubai starting February 2. The annual event attracts 600 people from 45 countries in the city that is home to Al Khaleej Sugar Co, the world’s biggest sugar refinery.
Sugar production in India, the largest consumer, will fall next season from 24.3 mt in 2012-13, according to the Indian Sugar Mills Association in New Delhi. Drought in the states of Maharashtra and Karnataka, which together account for 45 per cent of output, will encourage farmers to cut plantings, said ISMA's president M Srinivaasan. Production in Maharashtra will drop to 4 mt in 2013-14 from 6 mt this season, according to the Sugar Commissionerate of Maharashtra.
Mexican farmers
Indian millers’ inability to pay farmers because of high cane prices may mean plantings could also be down in the state of Uttar Pradesh, the nation's largest sugar cane growing state, according to Jonathan Kingsman, founder of Kingsman, who has traded sugar for more than 30 years.
US farmers will probably reduce plantings in 2013-14 and Mexican growers may not spend too much in husbandry, according to Pointier of Kingsman. Inventories in the US will gain to 2 mt by August, the most since 2000, the USDA forecasts. Mexico sends most of its sugar exports to the US under the North American Free Trade Agreement, or NAFTA.
The global sugar surplus may shrink to 3.5 mt in 2013-14 from 4.86 mt a year earlier, Kona Haque, a London-based analyst at Macquarie Group Ltd, estimated in a report on January 18. Prices will fall to an average 17.5 cents a pound in the second quarter on ICE, and rebound later this year, as ethanol output in Brazil takes some surplus away, she said.
Brazil outlook
“The surpluses are a cumulative issue, so even if we have a smaller surplus in 2013-14 than in 2012-13, it’s still a fourth year of excess supplies,” said Tom McNeill, a director at researcher Green Pool Commodity Specialists Pty in Brisbane, Australia. “Sugar still needs to drop to at least 16 cents to 17 cents for growers to get the message to slow production.”
In Brazil, output in the 2013-14 season that starts in the South American country in April, will total a record 39.9 mt, Macquarie forecasts. In the centre south region, which accounts for about 90 per cent of the country’s output, production may reach 35 mt to 37 mt, said Toby Cohen, a London-based director at Czarnikow Group Ltd, which traded sugar in more than 90 countries in 2011. That compares with 34.1 mt in 2012-13, industry group Unica says.
Brazilian millers may devote more cane to making ethanol at the expense of sugar after the government said it will raise the amount of the biofuel blended into gasoline to 25 per cent from the current 20 per cent and fuel prices were increased.
