Goldman Sachs Lowers Sugar-Price Forecast as Inventories Swell

Goldman Sachs Group Inc. cut its forecast for raw-sugar prices, saying inventories will continue to build and are set to be higher than expected at the end of the 2012-13 season begun in October.

The sweetener will trade at 18.5 cents a pound in three and six months on ICE Futures U.S. in New York, below the prior 22-cent estimate, Goldman Sachs analyst Damien Courvalin said in a report dated yesterday. He predicted a price of 19 cents in 12 months. Raw sugar for delivery in March fell 0.6 percent to 19.05 cents by 5:45 a.m. in New York.

“Going forward, we expect the global sugar market to remain in a surplus for the third consecutive year in 2013-14,” said New York-based Courvalin. “We expect a further build in global inventories.”

Raw sweetener slid 16 percent last year on ICE. The cane harvest in Brazil’s center south, the main growing region of the world’s biggest sugar producer, will keep expanding on continued planting and “favorable” weather, according to Goldman Sachs. The crop will climb to as much as 590 million metric tons in the 2013-14 season from 535.7 million tons in the current period, according to researcher Datagro Ltd.

“This larger harvest will most likely allow for both an increase in sugar and ethanol production that will help meet the higher anhydrous blend rate,” Courvalin said. He referred to a possible increase this year in the mandatory rate at which the biofuel is added to gasoline to 25 percent from 20 percent.

Flex-Fuel Vehicles

Both ethanol and sugar are made from cane in Brazil. Anhydrous ethanol is added to gasoline and the hydrous variety powers the nation’s fleet of so-called flex-fuel vehicles.

A speedy 2013-14 cane harvest in Brazil might create “downside risks” for the price forecast, Courvalin said. That might be offset by higher gasoline prices, which would in turn boost demand for hydrous ethanol, according to the bank.

“While near-record short net speculative positioning could exacerbate any weather-induced price rally, the upside to sugar prices likely remains limited unless weather conditions prove detrimental in the Northern Hemisphere later this year,” Courvalin said.

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