Global sugar surplus estimates nearly double on output jump

http://in.reuters.com/article/2013/01/25/sugar-poll-idINL4N0AU0FC20130125

January 25, 2013 at 12:13 PM


By Lewa Pardomuan

SINGAPORE, Jan 24 (Reuters) - A third consecutive global sugar surplus will trim prices by around 3 percent as supply is forecast to exceed demand by more than 8 million tonnes in the crop year to September 2013, forcing producers to carry excess stocks, a Reuters poll showed on Thursday.

Rising output in main consumers such as India and China will curb imports, and other producing countries are also awash with sugar after price hikes from 2008 through 2011 boosted planting. New York futures ended 2012 down 16.3 percent, a second straight annual loss.

"We start 2013 with a large short position, and it will take some serious macro risk-on moves to change this," said Macquarie analyst Kona Haque.

"If we don't get positive macro moves, then we would need weather scares or bullish ethanol policy changes in Brazil to encourage new longs. Otherwise, prices will remain depressed as funds stay short, much like we saw in coffee last year."

The global sugar surplus is estimated at 8.5 million tonnes in the crop year to September 2013, higher than 4.72 million forecast in July, according to a median forecast of 12 dealers and analysts.

The International Sugar Organization forecast a surplus of 6.2 million tonnes in the current year, but other estimates reached as high as 12.8 million. The global surplus was last in this range in 2006/07, when it hit 9.607 million tonnes, according to the ISO.

 

 

 

"With reduced volatility and higher stocks to form a buffer for volatility, we would expect the funds will find sugar somewhat less attractive," said Tom McNeill, director of Green Pool, a commodities analyst in Brisbane.

"That is not to say their participation will fall sharply, but funds are likely to find other commodities give better volatility and risk opportunities than sugar."

Front-month New York sugar futures will reach 19 U.S. cents a pound by the end of 2013, down 2.6 percent from 19.51 cents at the end of 2012, and compared to 18.50 cents at the close on Wednesday, according to the poll.

The front-month contract rallied to a 30-year peak of around 36 cents in February 2011 after a cyclone hit Australia, the world's third-largest raw sugar exporter.

"Fundamentally we are neutral on sugar prices although technically we see upside risks should speculator sentiment improve," said Standard Chartered analyst Abah Ofon in Singapore.

"We expect the 18 to 20 U.S. cents/lb to continue to provide good support for sugar, as this is near the marginal cost of production for more efficient producers in top producer Brazil, although this floor is increasingly vulnerable."

The poll forecast NYSE Liffe front-month white sugar futures at $490 a tonne at the end of 2013, down from $523.70 at the end of 2012, and compared to $489.60 at the close on Wednesday.

 

NEXT SEASON TO EXPERIENCE SURPLUS, NO WEATHER WOES

Output in Brazil's centre-south main producing region is likely to be the key driver behind the surplus, which may last through the 2013/14 crop year and reach 5.15 million tonnes in the next season, according to the poll.

Brazil will see sugar output from the centre-south region reaching 35.5 million tonnes in the current year before falling slightly to 35.2 million in 2013/14. This season will see bumper crops in the United States, Mexico and Central America.

"At present there does not appear to be any structured reduction in production, and so the market is dependent on weather influence to curtail the surplus," said Guy Toller, sugar director at Armajaro.

"But it looks unlikely that there can be a significant enough weather 'event' to offset the projected surplus. Indeed, weather looks to be broadly positive for production, with no major anomalies forecast."

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