Kingsman Sees World Sugar Surplus 4% Lower on Australia, Ukraine

The global sugar surplus may be 4 percent lower than a previous forecast partly because of smaller crops in Australia and Ukraine, according to Kingsman SA, a unit of McGraw-Hill Financial Inc. (MHFI)’s Platts.

Sugar supplies will be 4.7 million metric tons higher than demand in the 12 months starting in September, the Lausanne, Switzerland-based researcher said in a report e-mailed today, referring to its interim forecasts. That compares with its May 24 estimate for a 4.9-million-ton surplus. On a national crop-year basis, which starts when the harvest begins in each of the countries, excess supplies will amount to 3.9 million tons from the second estimate of 4.6 million tons, it said.

“This reduced surplus is being portrayed by some as bullish but although it is a step in the right direction, a surplus is still a surplus,” Kingsman said. “The past surpluses have not disappeared; the excess sugar is sitting in warehouses in China, India, Mexico and Argentina.”

Australia, the world’s third-biggest sugar exporter, will harvest a smaller crop due to heavy rainfall and disease that attacked the crop in northern Queesland, Kingsman said. Millers there will produce 4.1 million tons in the 2013-14 season from a previous estimate of 4.65 million tons, the researcher said.

Growers in Ukraine, who make sugar from beets, have switched to other crops because of lower prices, resulting in less area being planted, according to the report. Production there will be 1.24 million tons, 420,000 tons lower than previously forecast, the researcher said. Sugar futures, down 13 percent in 2013, are heading for a third year of declines on ICE Futures U.S. in New York, the longest slump since 1992.

Brazil Record

“Reductions in Ukraine and Australia have only been partially offset by increases in other producing areas estimates,” said Kingsman, which increased its forecast for sugar production in Belarus, El Salvador and South Africa.

Brazil, the world’s largest producer, will process a record 585 million tons of cane in the 2013-14 season started there in April, according to Kingsman. This forecast may need to be reduced if rains continue to hamper harvesting and crushing in the South American nation. While a weakening Brazilian real has made sugar again more profitable than ethanol, millers in the South American nation will still use more of the cane harvested to make the biofuel, it said.

“We need to consider other factors: ethanol revenues are mainly in reais, ethanol demand remains pretty strong and the hydrous domestic market is very liquid,” Kingsman said, referring to the kind of ethanol used in flex-fuel cars. “We therefore prefer to keep our sugar mix unchanged at 45 percent, corresponding to total sugar output of 34.4 million tons.”

Indian Millers

Millers in India, the world’s second-biggest producer, may make more sugar than forecast as monsoon rains are moving faster than usual, according to the report. Output there may reach 23 million to 24 million tons in 2013-14 from a current forecast of 22.3 million tons, it said.

The global sugar surplus will be bigger than forecast in the 12 months ending in September, according to the report. Excess supplies may amount to 11.87 million tons compared with the researcher’s sixth estimate of 11.8 million tons. The surplus this season will be bigger because crops in Mexico, El Salvador and Pakistan will be larger than forecast.

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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