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Raw sugar may drop to 17 cents a pound over the remainder of this year, the lowest level since 2010, as global supply is set to beat demand for a third year, according to broker and researcher Kingsman SA.
“Everywhere in the world has been trying to increase production, not reduce it,” Jonathan Kingsman, managing director and founder, said in an interview on June 7. The 17 cent target depends on average weather and no ethanol-related tax changes in Brazil, the largest producer, he said. Sugar may stay at about 20 cents if weather hurts crops and Brazil changes taxes, Kingsman said. Raw sugar closed at 19.76 cents on June 7.
Lower prices may extend a drop in global food costs, cutting expenses for users such as Nestle SA (NESN), the largest food company. The surplus in the season from October will be 9.3 million metric tons, up from a previous forecast of 5.7 million tons, the Lausanne, Switzerland-based company said in a report on June 8, ahead of an industry conference that opens today in Thailand, the world’s second-largest shipper after Brazil.
“Because of the big increase in production in India and Thailand, it isn’t really a deficit anymore in Asia,” Kingsman said. Regional output may beat demand by about 1 million tons this season and by a similar amount in 2012-2013, he said.
Raw sugar for delivery in July traded at 19.75 cents a pound on ICE Futures U.S. in New York at 4:25 p.m. in Bangkok on June 8. The most-active price has dropped 15 percent this year, extending last year’s 27 percent plunge, on prospects for the extended global surplus of the sweetener and biofuel ingredient.
Global sugar supplies will outpace demand in the season from October in most countries, producing another surplus, Rabobank International said in a report e-mailed last month, forecasting weaker prices. Raw sugar may fall to 17 cents a pound by September as supplies are set to outpace demand for the third year, Morgan Stanley (MS) said in a report e-mailed on June 7.
Global output in the year starting in October will be 179.9 million tons, 1.3 percent bigger than in the current season and 2.1 percent higher than previously estimated, according to Kingsman’s June 8 report. World demand will rise 1.8 percent from a year earlier to 170.6 million tons.
Production in Thailand may reach as much as 10.7 million tons in the year from November, a record for a third year, the Thai Sugar Millers Corp. forecast on June 7. Exports may exceed 8 million tons, according to the group, which represents mills.
Thai output will be 11.4 million tons in the season from November, higher than a previous forecast of 10.3 million tons, according to the Kingsman report.
India, the largest sugar user, may choose to hold supplies to avoid selling the sweetener at “too-low prices,” Kingsman said, with the report forecasting production of 25.5 million tons in 2012-2013. “We don’t think India really needs to export and the world market doesn’t need that sugar,” he said.
Current prices have prompted restocking by China, as well as Iran and Egypt, Kingsman said. Output in China may rise 4.1 percent to 13 million tons in 2012-2013, while consumption may increase 1.5 percent to 15.48 million tons.
Global food prices fell 4.2 percent last month, the biggest drop in more than two years, according to an index of 55 items tracked by the United Nations’ Food & Agriculture Organization. That’s 14 percent below the all-time high in February 2011.
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