Sugar, the fourth-worst performing commodity this year, will be under “bearish pressure” as global production exceeds demand for a third year in 2012-2013, according to the International Sugar Organization.
A rebound in output in Brazil, the biggest exporter, and improved harvests in China, the largest net importer, and Australia will boost global supply 2.25 percent to a record 177.4 million metric tons, Executive Director Peter Baron said. Supply will outpace demand by 5.85 million tons from 5.2 million tons in 2011-2012 and 1.3 million tons the year before, he said.
Futures have dropped 11 percent this year as prospects improved for the crop in Brazil. World stockpiles will reach a four-year high of 31.6 million tons at the beginning of 2012-2013, the U.S. Department of Agriculture estimates. China is set to harvest its second-largest crop in the year starting October, lifting production 19 percent to 13.7 million tons, the median of nine analyst and trader estimates compiled by Bloomberg show.
“Supply will be quite heavy for the market over the next two-three quarters,” said Tom McNeill, a director at Green Pool Commodity Specialists Pty, a Brisbane, Australia-based researcher. Prices may fall to 17.5 cents a pound, a level that may attract Brazilian growers to switch to making ethanol, he said. That would be the lowest price since July 2010.
Raw sugar rose 0.4 percent to 20.81 cents per pound on ICE Futures U.S. at 5:51 p.m. Singapore time. The most-active contract fell to a two-year low of 18.81 cents on Sept. 6. Sugar is the worst performer this year after coffee, cotton and lean hogs on the Standard & Poor’s GSCI Spot Index of 24 commodities.
“Taking into account the third year of global surplus with a possible end of the low stocks environment, we think that prices could remain under bearish pressure,” Baron said in an e-mail interview. The London-based ISO analyzes and provides statistics on the world sugar market.
Sugar may have “an appreciating bias” into 2013, as Thailand, China, India and Brazil face possible shortfalls in production, Standard Chartered Plc analyst Abah Ofon said last week. Industry researcher Datagro Ltd. on Sept. 19 cut its production outlook for Brazil’s center south, the world’s biggest growing region, to 31.3 million tons in 2012-2013, from a previous forecast of 32.7 million tons.
Futures may “consolidate” between 18 cents to 20 cents toward the end of 2012, Samson Tam, head of Asia agriculture at Marex Spectron Group Ltd., said by phone from Hong Kong today. “We still have uncertainties in weather pattern in key producing countries like Brazil, India and Thailand, which may reduce the current surplus,” said Tam, who has traded sugar at companies including Hong Kong-based Kerry Foodstuffs Co. and Singapore’s Olam International Ltd.
Global export availability is estimated to climb to 54.5 million tons, while demand for imports may drop to 48.3 million tons, Baron said.
Imports by China will fall to 1.95 million tons in 2012-2013, assuming no further purchases after rebuilding stockpiles, said Baron. China’s net imports in 2011-2012 are estimated at 3.3 million tons, exceeding U.S. purchases by 25,000 tons and making it the biggest buyer, ISO data show.
Production in India, the second-largest grower, will drop to 26.6 million tons from 28 million tons in 2011-2012 because of dry weather, reducing export availability to 2 million tons from 3 million tons this year, said Baron.
In Thailand, the second-biggest shipper, output will fall to 10.2 million tons from 10.6 million tons this year, according to the ISO quarterly report released last month. In Australia, the third-biggest exporter, production will increase to 4.5 million tons from 4 million tons a year earlier, the report said.
The harvest in Brazil will rise 3.9 million tons to 38.1 million tons in 2012-2013, below the 2009-2010 record of 40.9 million tons, it said. “So far the crop in Brazil is developing in line with our expectations at the end of August,” Baron said.