The possibility of an El Nino, a warming of the Pacific Ocean that causes rains in sugar growing areas in Brazil and dry weather in India, may erode a global sugar surplus, according to Copersucar SA, a producer in Brazil.
El Nino conditions may emerge by the end of the winter in the Southern Hemisphere, with the waters of the tropical Pacific continuing to warm, Australia’s Bureau of Meteorology said on its website on June 19. Global sugar supplies will outpace demand by 9.3 million metric tons in the 12 months that start in October, according to Kingsman SA, a Lausanne, Switzerland-based broker and researcher. That follows a surplus of 10.2 million tons in the current 2011-12 season, it estimates.
“If the forecasts for El Nino are confirmed, we will have a rainy year here and that may have some impact in the availability of Brazilian product,” Luis Roberto Pogetti, chairman of Copersucar, said by phone from Sao Paulo on June 22. “El Nino also brings drought to India and the two impacts will help reduce the surplus the world is expecting.”
Brazil is the world’s largest sugar producer followed by India, while Thailand is the second-biggest exporter. Rain associated with the last El Nino in 2009-10 reduced the cane’s sugar content in Brazil by 7.5 percent, according to industry group Unica. In India, monsoon rains were 22 percent below average in 2009-10, according to Brisbane, Australia-based Green Pool Commodity Specialists Pty.
Prices more than doubled in 2009 as demand in India outpaced production and prompted the government to halt exports. Global shortages reached 5.7 million tons in 2009-10, according to Paris-based traders Sucres et Denrees SA. The return of El Nino would be “constructive” to prices, which have fallen 10 percent this year through yesterday, Pogetti said before a Datagro conference in London today.
Rainfall delaying the crop in Brazil’s center south, the country’s main growing region, is trimming yields and reducing the time for cane processing, according to Copersucar. A lack of crushing time may result in millers favoring output of raw sugar and hydrous ethanol, commodities that take less time to make, Pogetti said. Hydrous ethanol is used in flex-fuel cars.
“We’ve lost about 11 days of production because of the rains so far and in a traditional period of 200 days of crushing this is very significant for the beginning of the harvest,” he said. “The cane is a bit poorer because of the rains. In March, we were working with sugar content of 140 kilograms (309 pounds) a ton and now we are at 137 kilograms a ton.”
Sugar production in the center south will fall to 31 million tons in the 2012-13 season that started in May in Brazil, down from a March forecast of 32 million tons and last year’s output of 31.3 million tons, the company estimates. Sugar cane output will rise to 505 million tons from 493 million tons a year earlier, it said. Ethanol production will be 21.4 billion liters (5.6 billion gallons), up from 20.5 billion liters in 2011-12, it said.
“The most probable scenario at the moment is that this harvest will be very similar to last year’s,” Pogetti said. “We planted more cane but won’t have more product.”
Production of white, or refined, sugar in Brazil will be smaller because of the rains, he said. That should mean a higher premium for white sugar over raws, he said. The white sugar premium jumped 66 percent this year to $147.03 a ton by yesterday.
Growers in Brazil are renovating cane fields and in two to three years that may result in the cost of production falling back to 18 cents a pound from the current 20 cents a pound, Copersucar estimates. Costs have been rising in Brazil because of higher labor costs and a strengthening of the real currency.
Global sugar demand for exports will rise by 12 million tons by 2020 as sugar consumption is set to grow by an average 2 percent a year, Pogetti said. The global export market is growing fast enough to absorb production expansion from Brazil and Thailand, he added.
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