Oct. 25 (Bloomberg) -- The sugar market’s surplus probably will be smaller than estimated because of the likelihood of crop damage in producing countries, according to Kingsman SA.
The global surplus will likely be below the 3.52 million metric tons predicted last month for the 2010-2011 crop year, Jonathan Kingsman, managing director of the Lausanne, Switzerland-based broker and researcher, said Oct. 12 in a phone interview. The latest estimate is a further reduction of his June projection of 5.2 million tons.
“The world has failed to live up to its expectations for increased production,” Kingsman said. “The world is very short of stock, having had two years of deficit. There’s not much room to maneuver. The market is pricing in the risk of poor weather in a number of countries.”
Forecasts have been cut on concerns that drought and floods damaged crops in producing countries such as Brazil, Russia, Pakistan and Australia.
“The risk of an early end to the Brazilian crop appears to be becoming reality,” Kingsman said. “There’s still a risk we will have dry weather in January, February and March, which could still negatively impact the crop.”
Raw sugar traded in New York has doubled since the end of May, and white, or refined, sweetener has added 51 percent in London. Both are about 7 percent below their 2010 peaks. Raw sugar in February reached the highest price since Jan. 15, 1981, and white sugar touched a two-decade high in January.
Raw sugar may “retest” 30 cents a pound if India, the world’s second-largest producer, fails to meet expectations, according to Kingsman. “Everyone is expecting a big increase in production to 25 to 27 million tons this crop year, but whether that’s going to be realized or not, it’s too early tell,” he said.
Demand will remain “resilient” even as prices rebound to near 2010 peaks, Kingsman predicted.
“It depends more on GDP growth than actual sugar prices,” he said. “We are seeing very strong growth in India and Southeast Asia, and as incomes rise we expect consumption to grow. But obviously if the sugar’s not there, then people can’t consume it, so that could be a constraint.”
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