Kingsman Sees Sugar Surplus Dropping 51% as Output Slides

The global sugar surplus will be 51 percent smaller in the 2013-14 season compared with a year earlier as lower prices result in a drop in production, according to researcher Kingsman SA, owned by McGraw-Hill Cos.

Sugar supplies will be 5.6 million metric tons higher than demand in the 12 months starting Oct. 1, the researcher, based in Lausanne, Switzerland, said in a report e-mailed today. That compares with 11.5 million tons in 2012-13. Production will slide 1.8 percent to 178.5 million tons in the period from a year earlier, according to the report.

While production in Brazil’s center south, the main growing region of the world’s biggest producer, will climb to a record in the 2013-14 season that starts there in April, output is set to fall in other countries including India, the second-biggest grower and largest consumer, Kingsman said. Russia, Ukraine, the U.S. and Mexico will also see declines, it said.

“Given low world and domestic prices, we expect production to decline in a number of other countries as farmers search for better returns elsewhere,” Kingsman said, adding that output is forecast to decline in “some of the more expensive producers.”

On a national crop year basis, which starts when harvesting begins in each of the countries, the surplus will be 39 percent smaller in 2013-14 at 6.28 million tons, the researcher estimated. The excess supplies represent 3.64 percent of consumption, down from 6.07 percent in 2012-13, it said. Sugar fell 39 percent in the last two years and is down another 3.5 percent in 2013. A third year of price declines would be the longest slump since 1992, data on Bloomberg showed.

Global Consumption

“Although that sounds a move in the right direction, surpluses don’t disappear: stocks accumulate and the can just gets kicked down the road a little,” Kingsman said. Production declines were “not enough to prevent another surplus.”

Global sugar consumption will gain 1.6 percent to 172.9 million tons in the 12 months starting Oct. 1, according to Kingsman’s estimates. Demand in 2012-13 will be 170.2 million tons, down from a previous forecast of 170.9 million tons, because of “disappointing demand growth” in the European Union and switching to non-sugar sweeteners in other countries, it said.

Sugar production in India will drop to 22.25 million tons in 2013-14, down from 24.24 million tons in the current season, according to the report. Output will decline partly due to dry weather in the states of Maharashtra and Karnataka, which together account for 45 percent of output.

Water Shortages

“Several districts in Maharashtra and North Karnataka are still suffering from a severe shortage of water and plantings are reported to be sharply lower as farmers shift to less water-intensive cane,” Kingsman said. “Uttar Pradesh is still an open book, but despite the possibility of rising cane payment arrears, cane still pays better than other crops.”

In Russia, once the world’s biggest raw sugar importer, output will slide to 5 million tons from 5.2 million tons in 2012-13, while production in Ukraine will be 2 million tons from 2.4 million tons, Kingsman estimates. Both nations will reduce the planted area. Mexico and the U.S. will see a “major drop” in production after a surplus this season. Mexican millers will make 5.76 million tons in 2013-14 from 6.4 million tons now. In the U.S., production will be 7.5 million tons from 8.2 million tons in the current season, according to the report.

Output Gains

The sugar-cane crop in Brazil’s center south will climb to 575 million tons in the 2013-14 season that starts there in April, according to Kingsman, an all-time high. That compares with 531.9 million tons in 2012-13, data from industry group Unica showed. Sugar production will be 35.5 million tons, Kingsman estimated. This week’s announcement of a gasoline price increase in Brazil and the government’s decision to boost the amount of ethanol blended into gasoline to 25 percent in May from 20 percent now may still change the amount of cane millers direct to sugar, Kingsman said.

“There is still time before the center south Brazil harvest for the ethanol-sugar equation to move in favor of ethanol,” it said. Both the sweetener and the biofuel are made from raw material sugar cane in the South America nation.

Millers in Thailand, the world’s second-biggest exporter, will make 10.4 million tons of sugar in 2013-14, according to Kingsman. That compares with a forecast for 9.9 million tons this season. Output will gain because of processing capacity expansion, the researcher said. Sugar production in Australia will rise 5.6 percent in 2013-14 to 4.65 million tons.

China’s Production

In China, last season’s biggest buyer, production will be similar to the 15 million tons forecast for this year as sugar cane is still a profitable crop for farmers, Kingsman said. EU output will gain to 17.5 million tons in 2013-14, a 761,000 tons increase from the 2012-13 forecast, it said.

The supply and demand outlook could still change if millers in Brazil opt to favor ethanol and Northern Hemisphere farmers change their planting intentions, Kingsman said. Unfavorable weather could also change the current picture.

“The world doesn’t need an additional 5 million tons of sugar in the warehouse,” Kingsman said. “The sugar market has been remarkably inefficient recently in sending the correct price signals, but that situation will not last forever.”

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