Bloomberg News

Brazil Sugar Crop Seen Failing to Compensate for Indian Drop

February 03, 2012

(Updates sugar prices in sixth paragraph.)

Feb. 3 (Bloomberg) -- Brazil’s center-south, the main sugar growing region of the world’s biggest producer, may reap its second-largest crop in history this season, and still fail to compensate for an anticipated decline in the Indian harvest.

Center-south output will rise 5.8 percent to 33 million metric tons in the season starting in April, according to a Bloomberg survey of 12 analysts. India, the second-biggest producer, will probably make 24 million tons in its season starting in October, a 15 percent decline, a survey of 14 analysts showed. Global supply will match demand, compared with a 4.5 million-ton surplus in the current season, the London- based International Sugar Organization estimates.

The projected disappearance of a supply surplus is coming at a time of record global consumption. Sugar futures plunged 27 percent last year, the biggest decline in a decade, as the glut emerged after three consecutive annual shortages. Prices more than doubled in 2009 when demand exceeded production by 12.6 million tons, enough to supply Egypt for four years.

“There is increased speculation that the current surplus will weigh on prices, reducing the incentive to boost production,” said Keith Flury, an analyst at Rabobank International in London. “That coupled with concerns about Indian farmers reducing cane acreage has increased expectations that the globe may shift back into deficit next season.”

Dubai Conference

Kingsman SA, a Lausanne, Switzerland-based broker and research company, will release its first forecast for 2012-13 on Feb. 7 at its four-day annual conference in Dubai that begins Feb. 4. A record 545 people are scheduled to attend, said Jonathan Kingsman, managing director and founder of Kingsman. Dubai is home to Al Khaleej Sugar Co., the world’s largest sugar refinery, capable of producing 6,000 tons a day.

Raw-sugar futures rose 1.4 percent to 23.63 cents a pound on ICE Futures U.S. in New York this year. The Standard & Poor’s GSCI Agriculture Total Return gauge of eight commodities dropped 0.3 percent as the MSCI All-Country World Index of equities climbed 7.2 percent. Treasuries lost 0.2 percent, a Bank of America Corp. index shows.

Open interest in raw sugar, or contracts outstanding, jumped 46 percent since the end of September, according to data compiled by Bloomberg. Hedge funds and other money managers held a net-long position, or bets on higher prices, of 93,520 U.S. futures and options as of Jan. 24, up from 43,792 at the end of 2011, Commodity Futures Trading Commission data show.

Sugar Shortages

Combined shortages in the three seasons before 2011-12 totaled about 20 million tons, Rabobank estimates. Consumption rose every year since 1994, U.S. Department of Agriculture data show. Demand will be a record 167.7 million tons in 2011-12, up 2.3 percent from a year earlier, according to the London-based ISO, which counts 86 countries among its members.

India’s production of 24 million tons would be the first drop in four years, according to USDA data. India’s output may fall if millers aren’t able to pay farmers for cane this season, according to London-based ED&F Man Holdings Ltd., which trades sugar across 40 countries. Cane prices set by Uttar Pradesh, the biggest cane-growing state, rose as much as 19 percent in the past year while the cost of refined sugar in Mumbai was little changed and global prices slumped.

Brazil’s crop may escape damage from La Nina, a phenomenon that causes heavier rainfall in Asia and drier weather in South America. La Nina may weaken in the next few months, Australia’s Bureau of Meteorology said on Feb. 1.

Cane Flowering

Brazil’s center-south output will rebound to 33.4 million tons, “assuming no untimely frost and no cane flowering,” Hussein Allidina, head of commodities research at Morgan Stanley in New York, said in a Jan. 17 report. Flowering reduces the sugar content in cane. The global surplus will be 4.5 million tons in 2012-13, he said.

The cane harvest in the center-south of Brazil fell almost 12 percent last year, the first drop in a decade because of damage from frost, flowering and drought, according to industry association Unica. Sugar production of 33 million tons in 2012- 13 would be the biggest since the record 33.5 million tons in 2010-11, according to Unica.

“Center-south Brazil has invested in increased production in 2012-13 and expectations are for an overall improvement in output,” C. Czarnikow Sugar Futures Ltd., a London-based researcher and broker, said in a report yesterday. “Any recovery in crop yields following last year’s poor result is likely to be limited due to the age profile of the cane.”

--Editors: Claudia Carpenter, John Deane

To contact the reporter on this story: Isis Almeida in London at Ialmeida3@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at Ccarpenter2@bloomberg.net.


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