June 11 (Bloomberg) -- Raw sugar prices traded in New York may fall to 18 cents a pound in the “near term,” a level at which millers in top producers Brazil would make more ethanol at the expense of the sweetener, according Societe Generale SA.
Sugar and ethanol are made from the raw material cane. Below 18 cents a pound, it would be more favorable for millers to make anhydrous ethanol, the type used to blend with gasoline, Michael Haigh, global head of commodities research at the bank in New York, said in a report e-mailed today. The commodity has fallen 12 percent this year to 20.45 cents a pound by 12:17 p.m. in New York as global supplies outpaced demand.
“Sugar prices are likely to continue falling in the near term,” Haigh said in the report. “We continue to expect a global sugar surplus as the Brazilian harvest is underway.”
Global sugar production will be 4.58 million metric tons higher than consumption in the 2012-13 season that starts in October, the bank forecast. That would be a third consecutive year of surplus. Supplies in the current season are forecast to be 6.39 million tons higher than demand, it said.
Raw sugar prices will average 22.5 cents a pound in the second quarter, down from a previous forecast of 23.9 cents a pound, SocGen said. In the final three months of the year, prices will average 23.4 cents a pound, down from a previous estimate of 24 cents a pound, according to the report.
On NYSE Liffe, white sugar will be at $598 a ton in the third quarter and $617 a ton the following three months, the bank forecast. That compares with previous estimates of $605 a ton for the third quarter and $608 a ton for the final one.
“A significant drop in production during the Brazilian harvest is the key upside risk to prices,” Haigh said. Rains in Brazil’s center south are delaying the crop and may reduce the sugar content in the cane, he said.
Coffee supplies may outpace demand by 6.5 million bags in 2012-13 as production climbs in Brazil, the top grower, Societe Generale said. Prices of arabica beans traded in New York have fallen 31 percent this year as producers in the South American country sold parts of the crop from 2011 and 2012 at the same time, Haigh said.
“The sell-off seems overdone, in our view,” he said. “Even recognizing modest global growth over the next few years, global inventories are just now reaching historical levels.”
Production in Colombia, the second-biggest arabica grower, will rise 6 percent next season, SocGen said.
Arabica coffee will average $1.662 a pound in the third quarter and $1.7446 a pound in the last three months of the year, the bank estimates. The commodity was down 0.3 percent at $1.569 a pound in New York.
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