July 7 (Bloomberg) -- Sugar output will lag behind demand by 2.1 million metric tons in the 2014-15 year that starts in October, after drought in Brazil, the world’s largest producer, Kingsman SA said in its third estimate for the season.
The previous forecast was a shortage of 239,000 tons, the Lausanne, Switzerland-based unit of McGraw Hill Financial Inc.’s Platts said in a quarterly report today. The change mostly reflects last month’s cut in the crop estimate for Brazil, and an increase in African demand. Kingsman’s first estimate for 2014-15 was a surplus of 2.1 million tons.
“We raised our estimate for a deficit in 2014-15 mainly on lower production in Brazil,” Claudiu Covrig, an analyst at Kingsman, said by phone today. “We’ve also increased our estimate for sugar production in Asia by 250,000 tons, raised our consumption forecast for North Africa by around 300,000 tons and see output in Cuba lower.”
Raw sugar prices in New York have climbed 7.6 percent this year after falling the past three years on surpluses.
Millers in Brazil’s center south, the nation’s main growing region, will process 575 million tons of cane in the season begun in April, down from a previous estimate of 585 million tons, Kingsman said in a report last month.
“Lower agricultural yields and the higher pace of cane crush raises the risk that Brazil will run out of cane by the fourth quarter of this year,” Covrig said.
Global sugar production will be 178.1 million tons in the 12 months starting Oct. 1, down 1.2 percent from a year earlier, Kingsman estimates. Consumption will rise 2.7 percent to 180.2 million tons in the period, according to the report.
“Another element which might change picture next year would be the ethanol blend in Brazil, as the government has to provide some incentive for using more ethanol,” according to Covrig. He expects the ethanol blend to rise from 25 percent today to “at least 26 percent,” possibly even 27.5 percent. Kingsman raised its forecast for the global sugar surplus in 2013-14 to 4.8 million tons from 4.3 million tons, according to the report.
Depending on the weather globally, “people will either continue to roll their positions into next year because March 2015 pays more than October or the global surplus should be reduced if production in Brazil is significantly lower and there will be significant problems in India due to a failed monsoon,” Covrig said.
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