Raw sugar may climb 19 percent by March if dry weather in Brazil, the world’s biggest producer, persists, amid growing demand from countries including China, according to broker Newedge USA.
The price may reach as high as 35 cents a pound, Michael McDougall, a senior vice president at Newedge, said in a phone interview from New York yesterday. A rally to that level will make the commodity the most expensive since November 1980.
Raw sugar in New York has more than doubled since reaching a 13-month low on May 7 on concern adverse weather will reduce output in Brazil, Russia, China and Pakistan. The market needs supplies from India, the second-biggest producer, to meet a deficit, McDougall said.
“If there’s less rain than normal in Brazil until March you could potentially see a reduction in the cane harvest and then you have a potentially big problem,” he said. McDougall in August correctly forecast that sugar will exceed 23 cents.
Futures rose for a fourth straight session yesterday amid speculation that India may curb exports as it builds stockpiles. Raw sugar for March delivery climbed 1.1 percent to settle at 29.45 cents ICE Futures U.S.
“Current prices show that the market needs Indian sugar,” McDougall said.
India was the largest buyer last year as adverse weather damaged crops. Its reserves are at about 4 million metric tons, compared with the nation’s preferred level of 10 million tons, according to Rabobank International.
The country should ship its 3-million ton surplus by the end of the fiscal year on March 31 to gain from high prices as output is likely to exceed demand for the first time in three years, Narendra Murkumbi, managing director of Shree Renuka Sugars Ltd., India’s biggest refiner, said in an e-mailed response to questions last week.
“Nothing can be more suitable than exporting in our peak season when farmers have to be paid, and coincidentally world prices are at a high,” Murkumbi said.
The government may consider allowing exports in the second week of November, Farm Minister Sharad Pawar said last week.
“I think that’s a possibility,” McDougall said, referring to India’s plan to ship 3 million tons.
The global surplus may be 2 million tons for 2010-2011, said Sergey Gudoshnikov, economist at the International Sugar Organization, in an interview on Oct. 26, less than 3.22 million tons forecast two months ago.
National Australia Bank Ltd. said last week it had doubled its forecast for China’s imports in 2010-2011 to 2 million tons. Pakistan will buy 1.2 million tons in the year started Nov. 1, exceeding 700,000 tons forecast previously, the U.S. Department of Agriculture’s Foreign Agricultural Service said Oct. 1.
“There is a fair amount of deficit in the market,” said McDougall. “The Chinese have been buying large amounts. The Russians still have to buy. They will probably come into the market around March-April.”