Global sugar production may exceed demand for the first time in four years if “normal weather conditions” return to the biggest growing nations, broker and researcher Jonathan Kingsman said.
The market may have surplus of 5.61 million metric tons in the year from April 1, compared with a deficit of 102,000 tons this season, as farmers in China, Brazil, Russia and Thailand boost acreage, Kingsman, managing director of the Switzerland- based company, told a conference in Dubai today.
Excess production may help cool global food costs which reached a record in January according to the United Nations’ World Food Price Index. Raw sugar soared to 36.08 cents per pound in New York on Feb. 2, the highest level since 1980, on concern that global supplies will lag demand after a storm in Australia and drought in Russia crimped harvests.
“Prices of over 25 cents for more than half of the last 18 months should have given strong signals to producers to expand production,” Kingsman said. “More normal growing conditions in 2011-2012 should allow for some relief for supplies, but that may take until late in 2011 before stocks turn the corner.”
A forecast for the sugar market swinging into surplus is in contrast to deficits in other crops, including wheat, which have helped push up prices and contributed to political unrest in nations in North Africa and the Middle East. Wheat has jumped 71 percent in the past year, corn is near the highest since July 2008 and soybeans have jumped 45 percent in the past 12 months.
Sugar for delivery from May 2011 through October 2013 is in backwardation, reflecting expectations that prices may ease in the coming months, Kingsman said in an interview Feb. 18. Backwardation occurs when near-term contracts are more expensive than those further out.
“Given that recent sugar prices are at their highest since 1981, we expect there to be some loss of consumption, and at least some tempering of expected consumption increments in many countries,” Kingsman said. Demand will expand 1.48 percent in the 2011-2012 season, compared with the normal annual increase of 2 percent, he said.
Global production may expand by 8.15 million tons to 173.2 million tons, while consumption may grow by 2.44 million tons to 167.6 million tons, Kingsman said. The biggest gain in output will come from China, where production may climb by 1.85 million tons, followed by Russia and Brazil’s Center South region, which may boost harvests by 1.52 million tons and 1.19 million tons.
Kingsman in December predicted a deficit of 369,000 tons for the current year ending March. Estimates for 2011-2012 are made with “the assumption of normal global weather conditions, which haven’t tended to be all that common of late,” he said.
Stockpiles will stay low for the next year and the deficit may last for the first six months of 2011, Kingsman said today.
Tropical Cyclone Yasi hit northern Queensland in Australia, a region growing a third of the country’s cane, cutting output potential in the area by about 50 percent, producers’ group Canegrowers said Feb. 4. That may keep exports from the world’s third-biggest supplier at a two-decade low of 2.2 million tons in 2011, according to Queensland Sugar Ltd.
“We’re still in the middle of the cyclone season and the uncertainty on the crop outlook isn’t over yet,” Queensland Chairman Alan Winney said in an interview at the conference. Production won’t return to normal levels of 4.2 million to 5 million tons until 2012-2013, he said.
Queensland Sugar accounts for more than 90 percent of Australia’s overseas sales of the commodity.
Frost damaged about 1.9 million mu (126,667 hectares) of cane in China’s Guangxi province, the China News Service said on Jan. 12, citing the local agricultural authority. The nation’s central bank Feb. 18 raised reserve requirements for lenders for the second time this year to counter inflation.
© Copyright 2014 Bloomberg News. All rights reserved.